The institutional investment outsourcing industry worldwide might be approaching $1 trillion under management, but it is the one niche in money management where performance of individual managers can't be compared.
After five years of exponential growth, investment outsourcing still is a relatively immature industry that lacks transparency and the well-known analytical tools applied to every other type of money management, sources said.
For example, neither of money management's most popular performance databases — eVestment LLC and InvestorForce Inc. — even has a category for investment outsourcers, also known as outsourced CIO, fiduciary management or implemented/delegated consulting.
If and when data aggregators do add outsourced investment strategies, they will not find it easy to obtain information from outsourcers or to develop standardized performance reporting.
“Questions that should be easy are very difficult to answer: Who has the best returns? Who has the lowest fees?” according to a February report about investment outsourcer selection from investment consultant R.V. Kuhns & Associates Inc., Portland, Ore.
Rebecca Gratsinger, CEO of R.V. Kuhns, said in an interview that a crucial question for investment outsourcers is how they can be compared with their competitors, just as are all other money managers institutional investors evaluate.
R.V. Kuhns is among only a few firms that provide institutional investors with independent evaluation of investment outsourcers. The consultant does not offer investment management services.
After Pensions & Investments surveyed investment outsourcers in April and May about their assets, client base and the level of investment discretion they have, in June respondents were asked for performance and fee information.
Only 22% responded with performance or fee information about their investment outsourcing business.
The most common reason managers gave for not providing such information was that all or much of their outsourcing accounts are customized to each client's investment and liquidity needs and a composite return is impossible to calculate or would lack relevance.
“All of our clients have different investment programs and goals and we feel it would be misleading to distill what are inherently complex individual scenarios into one collective example,” explained Katherine Stouffer, a spokeswoman for Russell Investments, in an e-mailed response to a request for return and fee information. Russell Investments, Seattle managed $108.5 billion in investment outsourcing programs for institutional investors as of March 31, according to the firm's response to P&I's recent survey.
SEI Investments provided a similar response.
“Our clients have very customized asset allocations depending on their goals and type of institutional account. Therefore, providing implementation performance would be too extensive and providing composite account performance would not be relevant,” said Laura Edlin, a spokeswoman for Oaks, Pa.-based SEI, when she declined by e-mail to meet P&I's request. SEI Investments managed $67.1 billion in investment outsourcing programs for institutional investors as of March 31, according to the firm's response to P&I's recent survey.
Neither Russell nor SEI Investments provides performance or fee information publicly, the spokeswomen said in their respective e-mails.
Investment outsourcers also are remarkably unforthcoming about their fees.
Typical annual fees for outsourcing range from 30 basis points to 100 basis points of assets and don't include management and/or performance fees for underlying managers, said R.V. Kuhns' researchers in their report.
By contrast, traditional consultants' annual retainer fees range between four and 10 basis points of assets, excluding manager and custodian fees.
The costs of investment outsourcing are “less transparent and harder to evaluate” than consulting fees, the Kuhns consultants concluded.
Andrew McCollum, a consultant at Greenwich Associates, Stamford, Conn., agreed. “Outsourcing fees definitely are not as transparent as institutional investors would like,” he said. “All kinds of services can be bundled into the fee and it's hard to get clarity about exactly how much you are paying for which services.”
While unwilling to share performance, Cambridge Associates LLC, Boston, did provide P&I with the following net fee schedule: 30 basis points up to $500 million; 26 basis points for the next $500 million; and negotiable for portfolios $1 billion or larger with a minimum annual fee of $300,000.