Spiking demand from U.S. institutional investors for total portfolio outsourcing, aka “CIO in a box” programs, is rewarding veteran players with significant asset growth and has new market entrants racing to build necessary infrastructure and investment teams.
New business pipelines are bursting for firms that provide outsourced chief investment officer or endowment office outsourcing programs that offer all the services of a fully staffed investment office, including Hirtle Callaghan & Co. LLC, Investure LLC, Perella Weinberg Partners LP, Makena Capital Management LLC, Morgan Creek Capital Management, Strategic Investment Group and Cambridge Associates LLC. These firms together managed about $148 billion at the end of May, a total that executives of these firms predict will significantly increase by the end of the year.
That optimism is borne out by projections that assets managed in total portfolio outsourcing programs for U.S. investors will total $411 billion by the end of 2014, with $198 billion coming from defined benefit plans and $213 billion from non-profit institutions, according to industry consultant Casey, Quirk & Associates LLC, Darien, Conn.
That five-year growth will more than double the $202 billion — $119 billion from U.S. pension plans and the $83 billion from endowments and foundations — CQA estimated was managed on an outsourced basis at the end of 2009, said Kevin P. Quirk, founding partner and principal.
The consulting firm expects the number of not-for-profits outsourcing the CIO function to triple to 1,582 in five years, while assets managed through those programs could grow 157%.
The big demand from endowments has attracted the notice of educational investment specialists Commonfund, Wilton, Conn., and TIAA-CREF, New York. Both firms are developing customized total outsourcing programs.
TIAA-CREF has chosen to emulate the endowment model developed by Makena, Morgan Creek and Investure, each of which was founded by former endowment CEOs and CIOs.
To make the model truly authentic, TIAA-CREF lured veteran endowment manager Scott W. Wise to become CIO of its outsourced investment management program and to get it up and running by the end of the year. Mr. Wise was president and CEO of Rice Management Co. which runs the $4 billion Rice University endowment, Houston (P&I Daily, May 17).