Limited plan committee time and resources as well as litigation concerns are driving increased interest in outsourced chief investment officer services from a variety of DC plan sponsors.
Historically a defined benefit, endowment and foundation phenomenon, outsourced investment programs on the defined contribution side have "really picked up steam" within the past two or three years, said Phil Edwards, Pennington, N.J.-based principal at Curcio Webb LLC, a consulting firm that helps primarily large plan sponsors find OCIO managers.
In Pensions & Investments' latest survey, OCIO managers reported nearly 2,000 U.S. DC clients as of March 31, a 22.4% increase from 2017. Total assets for the group reached $113.8 billion as of March 31; comparable numbers for 2017 were not available. Survey respondents were asked not to include assets managed in target-date and lifecycle funds.
Too little time and resources among plan sponsors, Mr. Edwards said, are major reasons DC executives are turning to OCIO managers to handle tasks ranging from investment manager selection and replacement to developing multimanager portfolios and custom glidepaths.
While defined contribution plans are "a bit more straightforward" than DB plans "in the sense that you don't really have an asset allocation and you have fewer investment options and the investment options are (primarily) traditional long-only equity and fixed income," there are still decisions to be made, Mr. Edwards said.
Plan executives are saying, "investments are not my day-to-day activity and not something I'm able to participate in on a regular basis," and would rather delegate some of those day-to-day decisions to a third party, he said.
Implementation varies by plan sponsor, with some looking to outsource their entire plan, and others, just a sleeve.
Another catalyst for DC OCIO adoption, Mr. Edwards said, is that OCIO managers are "able to provide what can be at times significant cost savings to defined contribution plans because of the scale of their businesses now."
"Cost has been a flashpoint of litigation" for DC plans, and the potential to achieve cost savings with an OCIO manager makes that relationship attractive, he said.
There is a "continued groundswell" within the defined contribution market for plan sponsors to outsource investment decisions and dedicate more of their time to, say, measuring the effectiveness of their plans for employees, said James Robison, Indianapolis-based managing principal at White Oak Advisors, which also helps large DC plan sponsors with OCIO manager searches.
Mr. Robison said six clients hired their first OCIO managers within the last 12 months, with several more inquiries and discussions. He declined to identify the clients.
The appetite for OCIO services extends to smaller plans as well, experts said.
White Oak — which provides OCIO services to midsize plans with $200 million in assets or below — received eight to 10 inquiries from midsize DC plans within the past six months, Mr. Robison said.