Pensions & Investments' round table on investment outsourcing revealed such little-known facts as how much investment discretion clients retain, how investment committee governance and functions are changing, and how little performance transparency exists.
P&I convened the round table last month in New York because investment outsourcing — also known as implemented consulting, discretionary management and outsourced solutions — has evolved from an obscure niche occupied by a handful of small players to one of the investment management industry's fastest-growing segments.
• Kevin P. Quirk, founding partner and principal of Casey, Quirk & Associates LLC, Darien, Conn., a consultant to money managers;
• Jay Gepfert, senior consultant at New England Retirement Consultants LLC, Boston, which evaluates investment out-sourcers for institutional investors;
• Jonathan J. Hirtle, CEO of Hirtle, Callaghan & Co., West Conshohocken, Pa., which manages $20 billion in portfolio outsourcing strategies;
• R. Bruce Myers, managing director of consultant Cambridge Associates LLC, Boston, which manages $105 billion in outsourced strategies;
• Christopher Delaney, associate treasurer-finance and administration at Gettysburg College, Gettysburg, Pa.; and
• George K. Mateyo II, senior director of investments at the Cleveland Clinic Foundation, Cleveland.
Investment outsourcing still is at “a very early ... stage. There has been a tremendous amount of growth, especially in the last couple of years,” Mr. Quirk said.
That growth, fueled by the prospect of billions of institutional investment dollars seeking total portfolio management help, resulted in about 40 firms now offering that assistance.
“The number (of outsourcers) has grown dramatically in the last 10 years,” Mr. Gepfert agreed.
Mr. Quirk listed three reasons for the growth: “the fact that the capital market conditions have been as challenging as they've ever been;” “resources (people and budgets) — if you look at the resources that institutional investors have at their disposal ... generally there's been a downward trend in the ability to put stuff against the investment problem;” and a “much more complex landscape for investors to navigate” because of the increased interest in alternative investments.
Said Mr. Hirtle: “In the 30 years I've been in the business, complexity has really skyrocketed and governance (has been) pretty much the same. If you look at a quarterly (investment committee) meeting, it's really sort of the same people who were there 30 years ago, except these are their kids ... they are asking the same questions ... and yet the challenge is dramatically more complex... and the complexity is not going to stop.”
He added that complexity “implies that to have a fully staffed investment department is a bigger challenge than it used to be. So right when you're cutting staff, you actually need to be adding staff. ... So it's hard. It takes a lot of money to amortize all that diverse capability.”