Fund managers seeking mandates from large investors such as pensions and endowments are becoming increasingly dependent on outside investment management firms.
Ninety percent of managers surveyed by Cerulli Associates last year said they have won business through an outsourced-CIO, an increase from 33 percent in 2014.
“As more institutions cede discretion for manager hiring decisions to their OCIO provider, they are gaining more influence over the placement of institutional assets,” said Michele Giuditta, a director at Cerulli, in a statement. “Accordingly, asset managers are placing greater importance on OCIO-intermediated assets.”
As of March 2017, OCIO firms had $1.43 trillion of assets under management, according to Cerulli. Currently, 81.1 percent of these assets come from defined benefit plans and nonprofits. According to Cerulli, however, OCIOs are gaining traction with a broader range of asset owners, including hospitals, defined contribution plans, family offices, and sovereign wealth funds. The Boston-based research and consulting firm said it expects outsourced-CIO assets to reach $2 trillion by 2020.
Right now, the largest outsourced-CIO shops wield the most influence, with the ten largest firms collectively managing 65 percent of industry assets, up from 62 percent a year ago, according to Cerulli.
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As a result of the burgeoning industry, 63 percent of asset managers surveyed by Cerulli said they believed OCIO mandates would be “very important” to their institutional sales goals over the next three years, up from 55 percent a year ago.
Just over a quarter said they have hired dedicated staff to woo outsourced-CIOs. Meanwhile, 53 percent said they rely on consultant relations and direct sales professionals. So far, managers say they have been most successful when working with OCIOs that are affiliated with investment consultants.
“Given the meaningful OCIO-intermediated industry asset growth, managers are making sure that their distribution teams are efficiently structured to handle these important allocators,” Giuditta said.