Roughly a quarter of institutional asset owners said they are considering the services of an outsourced chief investment officer in some capacity over the next 24 months, according to research from Cerulli Associates.
Inflation, interest rate hikes, market volatility and the changing implications of geopolitical conditions are drawing asset owners to the outsourced CIO model for the management of partial portfolios for alternatives and private asset classes for which they lack the appropriate level of expertise, said Laura Levesque, associate director of institutional at Cerulli, in a statement.
Roughly 14% of asset owners are considering outsourcing their CIO responsibilities and 11% are considering expanding the role of their current OCIO from managing a partial portfolio, or sleeve, to a total portfolio or the addition of other in-house managed asset pools, the research showed. Only 6% said they expect to reduce or stop OCIO services.
OCIO assets managed for institutional investors worldwide with full or partial discretion surged to about $2.66 trillion as of March 31, up 5.4% from 2021 and up 86.1% from 2017, according to data compiled by Pensions & Investments.
Industry experts and consultants agree that OCIO adoption is likely to grow in order to adjust to volatile market conditions and provide expertise in alternatives.
Cerulli said in a news release that it expects asset owners to increase allocations toward emerging markets debt, private debt, infrastructure and other real estate investments, making a compelling case for OCIO adoption. Ms. Levesque said in a statement that all four asset classes provide some level of diversification from other public market investments.
Cerulli noted asset owners are also seeking risk analytics, bundled plan administration and online portal access services. A survey that was included in the research shows that some, but not all, OCIOs are also providing help with fundraising and donor support, the selection of a custodian and record keeper, regulatory advice and support in creating grants.
When it comes to an OCIO provider's ability to maintain client assets, the research found that a firm's conviction to its original mandate is one of the most important factors and deviating from it is the most common cause of terminating relationships, more so than underperformance.
"OCIOs that are able to uphold investment conviction and report accordingly could have the upper hand when it comes to acquiring new assets," Ms. Levesque said in the same statement.