OCIO Market Booms as Investments Get More Complex

Chestnut Advisory Group projects assets under advisement to reach $4.15 trillion by 2026, a $1.7 trillion increase from 2020.

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As institutional portfolios continue to diversify and expand in scale, allocators are looking for some outside guidance to navigate new risk barometers and more esoteric investments like cryptocurrency and real assets. Increasingly, that guidance is coming from outsourced chief investment officers.

For those OCIOS, business is booming, according to data from Chestnut Advisory Group. The management consultant firm projected that assets under advisement will reach $4.15 trillion by 2026, a $1.7 trillion increase from $2.46 trillion in 2020. In fact, 68 percent of OCIO providers surveyed by Chestnut expected higher growth over the next two years.

In a Thursday webinar, Mercer senior partner and U.S. OCIO segment leader Samantha Davidson attributed the growth to a number of factors, including market volatility, “the great resignation,” and the need for innovation and mission alignment.

“Investment leadership transitions are often a frequent catalyst for OCIO growth,” she said.

In addition to these trending catalysts, there are also foundational reasons why organizations look to OCIOs for support, Davidson said. Those include risk mitigation, improvements to governance, better performance, time-saving strategies, and optimized fee structures.


In fact, out of the institutional investors who responded to the Chestnut survey, 75 percent said the most important factor driving OCIO hiring decisions was governance advisory.

Amanda Tepper, founder and chief executive officer of Chestnut, attributed this finding largely to more complex portfolios. Tepper defined complexity as the broadened sphere of investments and questions surrounding how to manage risk and volatility in more esoteric asset classes, in which investors have become increasingly interested.

“One notable recent example is British Airways hiring BlackRock as an OCIO,” Tepper said. “In their press release announcing this engagement, British Airways cited increased investment complexity as a key driver of this hiring decision.”

At many institutions with large portfolios, like public pension plans and foundations, a board of trustees must approve investment decisions. Tepper said many of these board members are not investment professionals and don’t understand the inner workings of every asset class their institutions’ portfolios are exposed to. So, Tepper said, they outsource the expertise to an OCIO.

“The traditional institutional approach for regularly-scheduled investment committee meetings to approve all the portfolio allocation changes was massively challenged by the volatile markets over the last year,” she said, making the period a “meaningful stress test for traditional governance,” according to one OCIO respondent.

“If you didn’t rebalance early on, you got pummeled, and if you did rebalance, you did pretty well. And rebalancing, of course, is a very strong discipline for OCIOs,” Tepper added.

Brad Alford, founder of OCIO search firm Alpha Capital, offered further anecdotal evidence of rising OCIO demand. “The search business has become so prominent, and we’re very busy,” he said.

Unsurprisingly, Alford said, the Covid-19 pandemic may have had something to do with his firm’s influx of clients. He said pandemic-related volatility scared a lot of investment committees and may have caused an uptick in OCIO searches. Moving into the future, Alford said the projected uncertainty of the markets will likely keep demand for OCIOs high.