Five to 10 providers are likely to dominate the outsourced investment management business by 2016, according to an analysis by money manager consultant Casey Quirk.
Small institutions in terms of asset size led the way in outsourcing management of their portfolios in the 1980s, but a growing number of midsize and large clients are likely to do so, helping lift combined outsourced assets for U.S. corporate and not-for-profit institutions from $256 billion at the end of 2011 to $500 billion by the end of 2016, Casey Quirk predicted.
In a telephone interview, Kevin Quirk, a partner at Casey Quirk, noted that the corporate and non-for-profit segment of the U.S. outsourcing market had grown to $256 billion at the end of 2011 from $100 billion at the end of 2005, for a compounded annual gain of roughly 20%.
Amid that rapid growth, the market for providers of outsourced investment management services has remained fragmented, with more than 40 or 50 competitors fighting for business now, he noted. Still, he predicted the market would evolve similarly to the hedge funds-of-funds market, which has seen “a handful of what we would call institutional leaders” come to dominate the space in recent years.
With the client relationships being forged now likely to last for up to 10 years, the current moment is a crucial one for those firms looking to capture market share, Mr. Quirk said.
In its analysis, Casey Quirk said those market leaders would set themselves apart by the level of resources they can bring to the table; investment excellence; risk management; strong sales and marketing capabilities; and a business model that allows them to leverage their offerings.