Institutional demand for outsourced chief investment officer services is strong and is likely to remain so. According to data from Cerulli Associates and other sources, OCIOs managed an estimated $3.1 trillion in predominantly institutional assets in 2024. According to the same sources, the market could reach $4.2 trillion — a 35% gain — by 2028.

OCIO Webinar

This panel of experienced OCIOs discusses what’s top of mind for asset allocation, including fixed income, private markets and alternatives; the nuances in long-term portfolio objectives, including liability-driven investing for pension funds, asset-liability management for insurers and liquidity needs for nonprofits; as well as their approaches to providing bundled services, selecting top asset managers and market insights that are baked into OCIO mandates.

Featuring

Matthew Clink, CFA

Senior Partner, Co-Head of Client Service

Aon US Investment Practice

Ian Johnson

Institutional Portfolio Manager, Team Lead, Global Institutional Solutions

Fidelity Investments

Jared Dickow

Co-Head of OCIO

Goldman Sachs Asset Management

Jim Link, CEBS

Head of Institutional OCIO and Liquidity Services

U.S. Bancorp Asset Management, Inc.

MODERATED BY:

Howard Moore

Associate Editor, Custom Content

Pensions & Investments

Wednesday, April 16, 2025

2:00 p.m. ET

Register Now

While much about outsourced investment management has changed over the past decade, institutional allocators’ priorities haven’t. Bryan Ward, head of U.S. investment at Aon, said that issues related to complexity, governance, fiduciary obligations, internal resources and manager access continue to drive institutions to OCIOs, as they have for years.

“Different types of asset owners may order their priorities differently, but these are still the biggest pain points that clients see in their portfolio management process,” he said. “Today, OCIO is mainstream: a widely accepted governance implementation approach to managing portfolios of all shapes and sizes, including corporate pensions, defined contribution plans, endowments, foundations — even operating assets.”

Tim Braude, co-head of multi-asset solutions at Goldman Sachs Asset Management, sees an emerging priority: Asset owners want to safeguard the long-term success of their investment management. Many organizations are thinking about how they can potentially “future-proof” their portfolios, ensuring that they have dynamic investment solutions, implementation and risk management.

“How do those asset owners think about the next phase of their investment management journey?” Braude asked. “They range from insurance companies looking to raise yields by moving across the fixed-income and credit spectrum into more complicated and differentiated investment products, to family offices that have grown and are looking to professionalize the investment management function.”

Where do asset owners currently seek OCIO help?

Ian Johnson, team lead for global institutional solutions at Fidelity Investments, sees several areas of need. “Corporate pension clients are concerned about how they can achieve sustainable returns in a higher-inflation environment,” he said. “Endowments and foundations are looking for help with their spending policies. With resources dwindling and potential cuts in government funding programs, they want to know how they can maintain spending levels or raise them going forward. They’re asking for deep analysis on that.”

Johnson also commented on the types of mandates, which can be a full solution, where the OCIO is responsible for investment management and administrative services; or a partial mandate, where the OCIO manages one or more sleeves within the overall portfolio. “Most of what we have seen is on the full investment solution side, but there are also requests to help specifically with private markets, for example. Another might be to create a U.S. equity sleeve so that the client could strive to align its allocation with its mission,” he said.

Jim Link, head of institutional OCIO and liquidity services at U.S. Bancorp Asset Management, pointed out that pensions and nonprofits alike have a wide array of needs, of which investment advisory is only one. The big challenge for OCIOs today, in his view, is putting together the right package of services for specific institutions.

“It would be great to be a one-stop shop, but resources and capital are not infinite,” he said. “It’s a matter of making sure you’re building the best slate of services you can. For us, that means focusing on what we can provide best and introducing other internal services, as well as building strategic relationships with firms that can bring value to our clients.”

On the nonprofit side, USBAM is adding significant resources and working to expand its range of investment solutions. According to Michael Kelly, OCIO specialist at the firm, “Endowments and foundations are among the most sophisticated investors because they have the longest-term view. They want their assets managed on a perpetual basis.”

“USBAM sees a substantial opportunity in not-for-profits with $50 million to $500 million in assets,” Kelly said. “We provide a fully discretionary OCIO solution that includes defining objectives, asset allocation, investment implementation through outside managers, reporting, governance training — all of it.”

Defined Benefit Pension Assets: OCIO vs. Non-OCIO

Source: Goldman Sachs Asset Management; the Cerulli Report: U.S. Outsourced Chief Investment Officer 2024; Investment Company Institute; Federal Reserve Board; Department of Labor.

Jared Dickow, co-head of OCIO at Goldman Sachs Asset Management, described three priorities of the firm’s OCIO clients. The first is to invest across a wide spectrum of private credit, ranging from investment-grade private assets to special situations, such as opportunistic and distressed private credit. Within investment-grade private credit, clients want to better understand their options to diversify public portfolios at higher yields compared with the potential new credit and liquidity risks being underwritten, he noted.

Next is the desire for the investment portfolio to be more focused on income and cash flow. “Traditionally, I’d argue that this is the realm of insurance companies and perhaps some U.K. pensions,” Dickow said. “But as we look across all asset owners, it’s becoming increasingly common across geographies and types of entities. Examples we’re seeing include U.S. pensions, hospitals looking to optimize their balance-sheet investing and new insurance companies wanting to compete with the bigger, more established players.”

A third concern for OCIO clients is to gain a more complete understanding of liquidity risk, which often results in repositioning the investment portfolio to have a waterfall of liquidity options. This approach contrasts with the more historically barbelled portfolios that hold very liquid assets on one end and illiquid private assets — typically private equity — on the other.

Read: Outsourced Chief Investment Officer: The Key to Navigating Volatility

OCIO providers are seeing particularly rapid growth in mandates from nonprofits. “Every stat I see has the endowments and foundations sector growing three-to-four times faster than corporate pension plans,” said Fidelity’s Johnson.

Larger endowments, foundations and other nonprofits are searching for OCIOs to deal with the complexity and fast-moving nature of the markets, and to be dynamic and adaptable (see visual). “Clients like our ability to actively allocate within client-constrained bands, underweight and overweight asset classes, and take advantage of our research,” he said. “We have that dynamic nature to lean into things like inflation- or stagflation-hedging assets as market conditions change, for example.”

Another area enjoying strong growth is the insurance sector, said Dickow at GSAM. “Unlike a corporate pension, where investing is arguably a noncore business function, it has a material impact on insurers’ bottom lines. When you dig in and appreciate their objectives and portfolio considerations, it makes sense that insurance is one of the fastest-growing sectors for OCIO.”

He said that GSAM segments insurance into two broad components: life and annuity insurers and all the other types — health, property and casualty, and others. Life and annuity insurers’ objectives typically center on portfolio income and management of credit and tail risks, versus pension plans’ focus on total return and mark-to-market volatility management. Other insurers — especially those with materially less predictable liabilities — may focus on total or absolute return, while emphasizing stability of returns through income and management of tail risks and correlated drawdowns.

“Insurers need an OCIO with a dedicated insurance team that has specialized knowledge and can manage portfolios in an insurance-friendly format,” said Dickow. “Having the right asset-liability management and measuring risk relative to liabilities isn’t conceptually different between insurers and pensions, but there are unique considerations. For an insurance company, an OCIO must be able to optimize the portfolio relative to the specific regulations, liabilities and capital required by asset class.”

Customization of institutional portfolios and investment vehicles has greatly increased in recent years, bolstered by OCIOs’ abilities to deliver exactly what their clients need.

Aon’s Ward sees high demand for customization in two areas. The first is hedging for corporate pensions, which varies by the plan’s liability profile. “Is the plan closed or frozen? What percentage of assets is allocated to the liability-hedging portfolio? What’s the portfolio’s objective? How much does the plan want to hedge, and how? The circumstances tend to get complex and call out for customization,” he said.

The second area needing a customized approach, said Ward, is for alternative investments. “Each asset owner has their own risk and liquidity tolerances for different alternatives. These would include private markets and liquid alternatives, such as hedge funds.”

All of Fidelity’s OCIO pension clients have customized mandates, according to Dan Tremblay, Fidelity’s head of pension solutions. “When you’re managing 100% of their assets, all of your clients have unique risk tolerances and end-stage objectives. You have no choice but to customize,” he said. “They include frozen mature plans whose duration has declined over the years; open plans with different end-stage funded-status goals; plans that cannot accept volatility relative to their market capitalization or credit rating; and other plans that are setting up a pension risk transfer in the next 12 months and have certain liquidity goals.”

USBAM’s Link believes that customization isn’t required for all allocators. Citing the example of target-date funds in defined contribution plans, he said, one could make the case that customization is needed to address the differing characteristics of the plans’ individual participants. Yet while not everyone in the plan has the same financial background, risk tolerance or amount of savings, they all use the same fund.

“There’s some truth to that in the institutional market as well, where investors with a long-term horizon have some fundamental needs that must be covered,” Link added. “The question then becomes, Do you need more than covering the fundamentals? That’s where customization comes in. We can customize just about anything that asset owners could ask for, but the question is whether that customization adds the requisite value for the client.”

In the OCIO world, there are differences among asset owners when it comes to investing in private markets. Larger institutions, for instance, tend to have bigger allocations and more experience than smaller ones. Nonprofits typically have had more exposure as they have longer investment horizons and fewer liabilities to fund versus corporate plans.

GSAM’s Braude emphasized that OCIOs need to work with clients to set their overall private market objectives, constraints and investment strategy. The OCIO then must deliver on the specific investment decision and generate results relative to those objectives and constraints.

“Doing this at the outset allows clients to focus on strategic topics. The OCIO is then responsible for implementing the strategy,” he said. “Rather than bringing every investment decision to an investment committee, it’s much more effective for us to help them build a mandate that aligns with their overall objectives. Asset owners are asking for this approach more frequently because they have a limited amount of time and they want to rely on our expertise.” For instance, Braude also encourages OCIO clients to be more opportunistic in the private secondary market, whether as buyers or sellers.

Liquidity — or the lack of it — is an issue for all investors in private markets. The sharp declines in the public markets in 2022 resulted in many institutions facing the so-called denominator effect that left them overallocated to private assets. This portfolio imbalance remains a problem for some but it’s improving, according to Aon’s Ward.

“Many clients are still overweighted to illiquid markets. Part of our strategy work is to help them understand their risk and liquidity tolerances, because there are opportunities in private markets today depending on what those tolerances are,” he said. “When investors become overweight or liquidity constrained, for example, there’s more selling in the secondary market, which creates opportunities for investors that can provide liquidity.”

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Many corporate pension plans are now fully funded, something that they were unable to achieve as a result of the great financial crisis until 2021. Their strong funded status is positive news for plan sponsors and beneficiaries — but it also presents challenges that OCIOs must help address.

The biggest is deciding whether to continue to actively manage a plan’s portfolio through the plan’s final stages, known as hibernation, or to offload all or part of a plan’s liabilities in a pension risk transfer, or PRT. “The end of your glidepath is not the end of your decision making. You’re just getting started,” as Fidelity’s Tremblay summed it up. “Hibernation allows companies to see value in their pension plan, whether it’s a hiring advantage, pension income or job security,” he continued. “They can keep the plan on their books. If it’s overfunded, the surplus creates opportunities for pension income, health and welfare benefits, starting a cash-balance plan, etc.”

PRT has gained traction in the last decade, as hundreds of successful transactions have shown it to be an effective way for companies to reduce or eliminate their plan’s oversight and obligations. In addition, PRT costs have declined as deals have increased and competition among insurers for PRT business has intensified, Tremblay noted.

Many corporate plans today are assessing the significant benefits of a buy-in, or partial PRT. “Partial PRT is a thoughtful way to right-size liabilities by transferring the cheapest-to-deliver retirees, or just doing a pro rata slice, which gives companies a much more manageable pension,” he said. It reduces “fixed costs as well as the premiums paid to the Pension Benefit Guaranty Corp.”

Read: OCIO and Fiduciary Management

OCIOs have embraced a partnership model with asset owners that goes beyond managing their investment portfolios. They can provide associated services that are vital to keeping their clients’ accounts running smoothly and in compliance with applicable laws and regulations.

While OCIO wouldn’t exist without investment management, governance is an equally critical aspect of the partnership with allocators — even if it sometimes tends to get lost in the OCIO conversation. As Aon’s Ward put it, “Investment management is a big part of it, but the governance framework for whatever the asset owner is trying to manage has to come first.”

“Deciding whether to go OCIO is, first and foremost, a governance decision, and everything goes from there,” he said. “Asset owners of all types have to look at their governance process and ask if their resources, people and processes effectively govern their portfolio, pension plan, endowment, etc. We believe that governance will be the primary decision by asset owners that will determine the future growth of the OCIO industry.”

USBAM’s Kelly described how the past few years have been tough for some nonprofits, causing them to delegate certain in-house functions to OCIOs. The pandemic was the catalyst. “Many organizations have had to reduce staffing levels and have struggled financially since then, even if they received government funding,” he said. “It upended their business models and made it harder for them to retain and attract talent. They are relying on their OCIOs to step in and provide more functions.”

The functions are numerous, Kelly said. For instance, an OCIO may take on management of liquidity portfolios and help manage cash. In addition, OCIOs are doing more customized, consolidated financial reporting, including for outside assets. The latter can be an onerous and difficult process for organizations to perform in-house.

And there’s much more. “OCIOs are helping to manage capital calls, particularly if the portfolio has legacy alternative investments. They can provide or coordinate custodians,” Kelly said. “Most nonprofits require extensive banking, credit and transaction services for fundraising, operations and capital projects, and some are evaluating acquisitions. OCIOs also help them with philanthropic services, such as fundraising, donor marketing and creating donor plans. All of these things are critical for nonprofits.”

Read: Trends in the Public Pension Space 

Aon’s Ward considers OCIO “the outsourcing of everything,” as he put it. For hybrid mandates, the institution oversees the broad portfolio and the OCIO manages one or more sleeves. The biggest pain points tend to be in the back office. These typically include cash raising, trading, managing the investment policy to target and more complex areas such as alternatives allocations and hedging.

To deliver the customization that institutional clients need today, an OCIO must offer significant advantages, Ward added. “We have extensive experience, capabilities and the relationships with asset managers to innovate and customize solutions. The job is a three-way partnership among the asset owner, the OCIO and the managers we put together as a multi-asset-class solution provider.”

In addition to these, Aon’s differentiators include scale and manager research. “The larger OCIOs drive scale, and the benefit goes directly to the plan sponsor or asset owner. Our scale enables us to negotiate very favorable asset management fees that many of our clients would be unlikely to achieve on their own as a stand-alone portfolio,” Ward said.

As for manager research, delivering the best of the best is key for an OCIO. “We strive to identify the best private credit manager, the best real estate manager, the best public equity manager, the best investment-grade fixed income manager. We don’t have any proprietary products, and we aren’t limited by a platform.”

To Fidelity’s Tremblay, successful OCIOs must offer what he calls “non-investment alpha”: the combination of reporting with the ability to offer multiple services and the flexibility to adjust to changing client needs. “We believe that investment strategy and performance are key to a fruitful relationship, but they’re table stakes in some instances. OCIOs need to do more,” he said. “Non-investment alpha starts with client service and reporting. When done well, they’re huge client satisfiers. This is especially so in OCIO, where transparency can be difficult, and sponsors are used to having daily access to information.”

Fidelity can offer a comprehensive package of administration, actuarial services and investment management under one roof. Tremblay calls it the “power of the bundle,” which makes working with the firm straightforward and more efficient. OCIOs must have the flexibility to fine-tune mandates to meet unique sponsor needs, whether for human resources, corporate finance or investment management, he said.

Perhaps the most direct way for OCIOs to add value is through their selection of investment managers. Favorable selection could lead to above-target returns and effective diversification.

GSAM’s selection process utilizes its dedicated external manager platform, which uses open architecture for maximum flexibility in delivering robust outcomes for clients. The firm’s selection process emphasizes dedicated coverage and due diligence teams across investment categories. “Given the complexity in the investment world today, we believe the dedicated-team approach works well,” Dickow said. “Whether it’s private equity, hedge funds or public investment-grade credit, we have global teams supporting each vertical. Whether it’s a large manager or a boutique, we take hundreds of meetings and are able to ensure that we have comprehensive coverage of the global universe.” By leveraging their scale, he continued, teams can closely partner with selected managers, often driving more favorable terms and fees and accessing scarce opportunities.

Another differentiator that helps ensure that GSAM’s selection process remains rigorous is the firm’s devil’s advocate approach, in which senior investors probe for weaknesses in the coverage team’s investment thesis for a given manager, he said. In addition, “you have to pair the selection with monitoring and risk management. We focus on constant monitoring and engagement, and we revisit whether a manager is doing exactly what we expected it to do. This is a critical step in the delivery of OCIO services.”

Aon works with the full range of asset managers, from some of the largest to some of the smallest. “We’re searching for the best of the best, and they come in all shapes, sizes and capabilities. The niche expertise of some boutiques nicely complements the investment strengths of larger managers,” Ward said. “We look at the entire universe of manager opportunities and capabilities. When asset owners evaluate us as their potential OCIO and see how we structure portfolios, they’ll find managers that are household names and others they’ve never heard of. That’s an important aspect of what we do.”

USBAM’s Link sees manager selection as happening in two key stages. The first is portfolio construction and its corresponding upfront planning. Second is matching the client’s needs with the most appropriate investment manager and vehicle.

USBAM doesn’t have a particular bias relating to manager size, as large firms and boutiques alike can have roles in meeting an OCIO mandate, Link said. The firm chooses managers it believes can produce alpha in market segments where it sees opportunity to create excess returns. That said, OCIOs typically direct client funds to favored managers in specific asset classes — and those managers often are larger. They tend to have the scale, capacity and variety of pooled vehicles that can accommodate OCIOs with numerous clients investing in those asset classes. But there’s plenty of room for niche or boutique managers when there are particularized needs. “A boutique manager can often do things or create customization through some kind of separately managed account that a large manager either can’t or won’t. That’s a big benefit for clients,” he said.