When it came to finding an investment outsourcing firm, 36% of investors used a specialist consultant in their search for an outsourced CIO firm in 2019, survey data from Cerulli Associates showed.
About 71% of the consultants Cerulli surveyed said they first got involved in OCIO searches in response to a request from an existing client.
A majority — 87% — of OCIO providers, on the other hand, said their "largest opportunity" comes from institutions that previously relied on a traditional advisory consulting model and "are looking to cede (investment) discretion over the management of assets," the survey said.
The most significant or moderate challenge that 88% of OCIO search consultants surveyed said they face when conducting due diligence on OCIO managers is inadequate communication about investment performance.
About three-quarters (76%) of OCIO consultants said lack of transparency about fees was a significant or moderate hurdle and 51% of those surveyed said both closed-door policies and lack of transparency about the OCIO's investment model also posed significant to moderate hurdles.
Cerulli researchers said competition is driving down the cost of OCIO services, with 28% of OCIO managers reporting that they had lowered fees over the three years ended Dec. 31. About 38% of asset owners said they were successful in negotiating lower fees during the bidding process in 2019.
"OCIO search consultants are an important and influential intermediary between OCIO clients and providers," said Christopher Swansey, a Cerulli analyst, in a news release accompanying the survey.
"It is of the utmost importance for providers to form relationships with search consultants by being open and transparent about their performance, fees and service offerings," Mr. Swansey said.