As the outsourced chief investment officer industry expands, large OCIO providers like BlackRock are going after healthcare systems, whose portfolios have unpredictable cash needs and growing interest in private markets. OCIOs are expected to manage $5.6 trillion in assets in three years.
BlackRock landed three healthcare portfolios over the past 12 months, each exceeding $1 billion, according to Ryan Marshall, global head of multi-asset strategies and solutions.
As head of BlackRock’s more than $400 billion OCIO business, Marshall said that healthcare systems want access to private market investments, while maintaining ample short-term liquidity, but many lack the staff to manage both goals internally. So, he sees more turning to outsourcing.
“Healthcare is a growing industry in the U.S., and these pools of capital are larger than they’ve ever been,” Marshall told Institutional Investor. “With that comes complexity and a desire to diversify.”
Though BlackRock doesn’t break out its assets under management by client segment, the manager saw a compound annual growth rate of roughly 20 percent in OCIO assets from global healthcare clients since 2022. And it’s not just BlackRock: healthcare is also a fast-growing area for Goldman Sachs Asset Management’s OCIO business as well as others.
“We continue to see strong interest in our OCIO capabilities from healthcare organizations seeking to navigate increasingly complex market environments,” said Tim Braude, co-head of multi-asset solutions at GSAM.
Why Healthcare Is Harder
Healthcare portfolios can be more difficult to manage than pensions or endowments. Rather than meeting a predictable liability or making set payouts, healthcare systems have various needs with volatile cash demands that can change on a dime.
"Having served five different categories of not-for-profit investment programs, healthcare has been the most complex,” said Ken Lee, chief investment officer at California Institute of Technology and former investment chief for Children’s Health System of Texas.
As Lee explained: "The liability profile of the asset pools can be unpredictable. On top of that, healthcare comes with volatile operating cash flows, regulatory risks, and other institutional constraints that can limit the freedom of some in-house teams."
Donna Snider, chief investment officer for Hackensack Meridian Health and advocate for managing these portfolios internally, recently told Institutional Investor that healthcare is “a different animal where needs can pop up unexpectedly, so you need to be aware of what’s happening at all times.” Snider became CIO of the New Jersey-based organization at the start of the covid pandemic.
BlackRock’s Marshall argues that healthcare organizations “should think about triaging that capital into distinct buckets.”
“There are parts of the portfolio where you need to emphasize liquidity, parts of those pools are earmarked for longer term capital projects, and a third part that looks like university endowment money, which is there to provide a perpetual source of capital,” Marshall said.
The same complexity that has led some allocators to argue that these portfolios require internal oversight, Marshall makes the opposite case, arguing that clients can harness BlackRock’s scale to navigate private markets. He added that the allocator’s in-house teams “don’t go away, they leverage our capabilities and resources.”
