In the current climate, institutional investors have relied more heavily on consultants for both traditional advice and outsourced CIO services, a trend that will no doubt continue, according to forward-looking predictions from sources and annual data from Pensions & Investments' investment consultant survey.
P&I's annual survey of the largest investment consultants found that institutional assets under advisement grew 3% to $42.65 trillion over the year ended June 30, while U.S. institutional tax-exempt AUA grew 4% to $23.59 trillion, in spite of rocky markets and equity drawdowns earlier in the year.
Over the five-year period ended June 30, institutional AUA grew 24.6%, while U.S. institutional tax-exempt AUA grew 28.5%.
Jamie Eckert, Chicago-based senior director, investments, U.S. head of client service at Willis Towers Watson PLC, said many corporate plan sponsors, in particular, are "focused on the financial strain and business distress as a result of COVID-19 and cannot afford to spend as much time managing their plans during a time when they cannot afford not to spend time on it."
For many corporate clients, the solution has been to outsource, Mr. Eckert said.
Among defined benefit plan sponsors there has also been a move to, or interest in, adding a diversifying asset class to their portfolios, often by exposure to alternative credit strategies — such as high yield, loans, securitized credit, sovereign credit and emerging market debt — through both OCIO and traditional advisory mandates, she added.
Alternative credit "is where DB plan sponsors are going first to diversify as many have not yet built out their credit exposure and it is relatively easy to implement vs. alternatives for consideration such as private markets," Ms. Eckert said. "Many corporate plan sponsors lack the time, expertise and governance to execute a fully diversified and opportunistic alternative credit portfolio and find it much easier to use a fund-of-fund sleeve solution."
"On the DC side, we're seeing more strategic reviews of asset classes already in place, but we're not seeing the addition of asset classes like I've noted on the DB side," Ms. Eckert said.
OCIO assets grew at an even faster pace than institutional AUA at the largest consultants, reaching $1.51 trillion as of June 30, up 10.6% over a year earlier, according to survey data. Over the five-year period, OCIO assets grew significantly, up 83.5%.
Kevin Quirk, a Stamford, Conn.-based principal at Casey Quirk, a practice within Deloitte Consulting LLP, noted of the past several months: "Like in every significant crisis I've seen, these are exactly the times that clients tend to lean much more heavily on their investment consultants."
"A lot of the conversations we've had with investors, especially given the move to a virtual environment, is they've had a significant uptick in the interactions they've had with (their consultants). In the last six to eight months since this (pandemic) began, there's been an uptick in the interactions and the demand for what consultants (offer)," Mr. Quirk added.