Invesco is looking to get into the outsourced chief investment officer business by acquiring an OCIO firm or team.
The $1.2 trillion investment manager has approached at least two firms, including TIAA’s abruptly shuttered OCIO business, about a potential acquisition, according to sources familiar with the matter.
Such overtures are not entirely unexpected for an asset management firm like Invesco, according to Dennis Sugino, founder of OCIO consultancy Kansa Advisory. “It doesn’t surprise me that more money managers want to follow in the footsteps of BlackRock and other organizations to get in the OCIO business,” he said by phone Thursday.
A deal between Invesco and TIAA would have made sense in at least one aspect: The majority of TIAA’s OCIO staff were based in Houston, where Invesco has a major office, according to one former TIAA staffer.
“They didn’t want to start from scratch because it would take too long to get a track record,” the source said about Invesco’s desire to acquire a team, rather than to start its own business.
However, the source suggested that there were a few reasons why the tie-up didn’t happen. First and foremost, TIAA didn’t shop the OCIO business around before deciding to shut it down. Following the news of its closure, “about a dozen” OCIO businesses said they would have been interested in at least taking a look at the TIAA group, the former TIAA employee said. Invesco was one of the firms that became interested after the wind down was made public.
Another reason the deal didn’t happen, according to the source, is that part of TIAA's internal assets were invested in the business as seed capital. TIAA was not willing to share those performance figures with Invesco, the source said.
The TIAA staffer also cited the two firms’ clashing investment styles as a reason the deal wouldn’t have worked. “Invesco is about using their proprietary products,” the source said by phone. “TIAA is more of an institutional, university endowment approach. Invesco wanted to put together things and offer it to the market as a solution. TIAA was better at customizing solutions.” A spokesperson for TIAA declined to comment.
TIAA isn’t the only OCIO business that Invesco has reportedly tried to acquire.
One OCIO business owner said that they had been approached by Invesco about a potential acquisition, but that talks didn’t proceed past the early stages. The OCIO executive said that they got a sense that Invesco had seen other money managers get into the business and was hoping to do the same.
“They said that they want to be able to offer the full suite of services to clients, including OCIO... but when I pressed them for any live leads in OCIO I didn’t hear any, so I interpreted that as an aspiration for clients rather than identified actual potential clients,” the source said. A spokesperson for Invesco declined to comment on the matter.
If Invesco were to acquire an OCIO business or team, the firm would likely have to manage conflicts of interest, according to two OCIO consultants.
“You get inevitable conflict situations where are they doing it to sell their own products or have other intentions in mind,” Sugino said.
According to Sugino, some money managers that offer OCIO services are getting around that conflict by agreeing to not charge a fee for their own products when they’re included in an OCIO portfolio. “But still, it’s optimal for an OCIO to have no conflicts at all,” he added.
Brad Alford, the founder of OCIO search consultancy Alpha Capital Management, agreed that potential conflicts of interest at money management firms is a concern for OCIO clients.
“The tricky part for money managers is that a lot of clients want pure-play consultants,” Alford said.
Still, other clients are willing to hire money managers as their OCIOs. One of his firm’s recent search clients, for example, ended up hiring JPMorgan Chase & Co.
“Everyone has a desire to own an OCIO,” Alford added. “The Invescos of the world have to be careful not to bite the hand that feeds.”