Opaque Performance Seen as Near-Universal Challenge in OCIO Industry

Nine-in-ten search consultants surveyed by Cerulli said they struggle to get a read on performance and fees.

Cyril Marcilhacy/Bloomberg

Cyril Marcilhacy/Bloomberg

Performance and fee reporting remain the top impediments for the growing outsourced-CIO industry, according to a new report by Cerulli Associates.

OCIO search consultants surveyed by Cerulli overwhelmingly cited inadequate communication around investment performance and lack of fee transparency as the top two challenges when working with outsourced investment firms. Ninety-one percent said that getting information on performance was at least moderately challenging, including 27 percent who called it a “significant” challenge.

Likewise, 91 percent cited fee opacity as a challenge, including 18 percent who found the lack of transparency significantly challenging.

The lack of consistent reporting standards in the OCIO industry has become a key issue for providers, allocators, and search consultants, especially as the industry continues to grow. As of the end of 2019, Cerulli reported that U.S. OCIO assets had reached $1.9 trillion, representing an annual growth of 16.5 percent since 2015.

While transparency concerns “remain a top challenge,” Cerulli analysts believe recent efforts to improve industry reporting standards will make a difference in the coming years. These include the Alpha Nasdaq OCIO Indices, a benchmark for OCIO performance that launched in November 2019. Last week, the indexes were added to eVestment’s manager database, which is used by 1,036 institutional allocators and consultants to evaluate managers, according to eVestment’s website.

[II Deep Dive: An OCIO Performance Index Exists for the First Time. Here’s How They Did.]


Cerulli also pointed to a working group of OCIO providers and other industry leaders led by North Pier Search Consulting. The group, called the Discretionary Investment Management Working Group on Data Standards, is focused on creating reporting standards for the OCIO industry.

“Ultimately, firms that are able to adopt any developing industry standards by these groups should have an advantage in attracting potential clients,” Laura Levesque, associate director at Cerulli, said in a statement. “It may also help avoid future performance surprises and assist in building lengthier client relationships, a top goal for both OCIO providers and asset owners.”