OCIO models may become more attractive in current market: report

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A road sign with outsource inhouse words on sky background © Liu Ming /123RF Stock PhotosThe current market environment may change the way US institutional investors manage their assets going forward.

For instance, corporate DB pension plans are expected to increasingly seek help managing their portfolios through de-risking services, according to a report from Cerulli Associates. “The continuous pressure on these asset pools is likely to drive the need for liability-driven investing, glidepath services and multiasset-class solutions in the near future,” said Laura Levesque, associate director at Cerulli, in a press release.

The tough market conditions will likely also cause more institutional investors to seek investment advice, leading to an increase in request for proposals in late 2020 and 2021. And the market environment is also increasing the potential for institutional investors to consider going the outsourced chief investment officer route. “Most of the OCIO business for investment consultants grew in the wake of the 2008-2009 financial crisis,” the report said. “In many cases, these firms simply converted their advisory clients to OCIO clients. This is another way that investment consultants are remaining competitive as advisory fees for OCIO services are significantly higher than what can be charged for traditional advisory.”

Asset owners faced with the tough market environment may now see the additional cost as a more reasonable expenditure to meet investment goals than they did previosuly, the release said. “The increase in volatility will present a challenge to both large and small asset owners,” added Levesque. “It is therefore likely that there will be an increase in OCIO clients of all sizes seeking to elevate their portfolio oversight and risk management.”

Sixty per cent of investment consultants surveyed by Cerulli operate OCIO businesses in addition to their traditional advisory businesses, while 30  per cent of US investment consultants are offering OCIO search services to help asset owners evaluate different OCIOs to identify the best fit. These investment consultants typically don’t provide their own OCIO services. Yet, some do. And as such, investors should inquire about which services consultants perform to avoid potential conflicts of interests, the report said.

In addition to looking for outsourced solutions, institutional investors are also asking for more involved investment guidance from consultants, going beyond the usual asset manager searches, investment policy reviews and asset allocation studies, the report added.

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