White Paper
Asset Owners Have More Reasons to Move to an OCIO Model
Expanded access for new clients, risk exposure evaluation for current clients expected to ramp up
Summary
Outsourced chief investment officer (OCIO) remains a niche area of the institutional marketplace yet continues to grow at a faster pace than the overall institutional space. Endowment and foundation (E&F) clients now are adopting OCIO relationships at a faster rate than more traditional OCIO clients that have dominated the market over the last 15 years, such as corporate defined benefit (DB) and defined contribution (DC) plans. Asset owners in the E&F space are seeking out OCIO providers for different reasons that largely reflect those challenges of today’s investment landscape that are expected to endure over the long term. Providers that are well positioned to support these new opportunities seek to highlight and effectively communicate these attributes of their offerings for newer clients.
Key Points
OCIO Usage on the Rise
A small but significant number of institutional asset owners are expected to either increase their usage of OCIO services or begin using them for the first time in the next two years. The types of clients expected to adopt OCIO for the first time increasingly are nonprofit organizations including endowments, foundations, and health and hospital systems. Their reasons for choosing the OCIO model are varied but largely are a reaction to changing market conditions and their related challenges.
Market Conditions Top of Mind
Cerulli’s 2022 survey of institutional asset owners shows that current market conditions are top of mind for nearly all institutional clients. Increased inflation, market volatility, and quickly evolving geopolitical events are areas of growing concern for which many institutional asset owners feel they need support from investment consultants and OCIOs. These issues make portfolio management increasingly challenging, especially for smaller institutional asset pools with limited staff and resources. Additionally, asset owners are seeking diversification and less volatile asset classes, often in the form of alternatives and private asset classes for which they have less expertise and access.
Emphasis on Risk Management
Historically, OCIO providers did not have to communicate investment capabilities to a great extent with new clients; for OCIO providers that acted as investment consultants and converted advisory clients to OCIO services, they often were simply asked by clients, “Can you manage our asset pool as an OCIO?” with little attention to the details of the relationship. With changes to the market environment over the last three years, both prospective and current OCIO clients are putting an increased emphasis on the risk management capabilities of their OCIO providers.
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