Global Endowment Management, too, focuses on a specific type of client — typically foundations and endowments — and calls itself a boutique by design. “We’re really focused on a support and partnership model. It’s a build-to-suit type of approach,” Ms. Lynch said. The firm works with clients at both a governance level and an investment level and leans on having firsthand knowledge of what foundations and endowments are up against. Ms. Lynch herself was previously CIO at the Duke Endowment, the $3.3 billion family foundation of James B. Duke, before starting GEM in 2007.
“We also subscribe to the view that size is the enemy of performance across basically all asset classes except private credit,” Ms. Lynch said. “And so the ability to implement strategies that are going to generate outsized returns doesn’t work well at scale.”
Build-to-suit is also the approach of SEI, which has invested heavily in technology over the years to be able to create whatever structure clients ask for. Mike Cagnina, Malvern, Pa.-based senior vice president and managing director of the institutional group at SEI, said the investment in technology combined with the long tenure of the investment team gives them a unique perspective.
SEI reported $87.1 billion in OCIO AUM as of March 31, down 13.5% from 2022.
“If you want to generate alpha in a portfolio, you have to have a long history of doing it,” Mr. Cagnina said. “You have to have the relationships and you have to be able to gather the data, model it and understand what managers are doing to generate their returns. There is a lot of complexity involved in that and it can be hard to build that up in-house.” SEI added its first OCIO client in 1992.
Mr. Cagnina added that the technology also allows them to model out future scenarios and test portfolios.
“Go back 10 years ago, for example, and we had small allocations to managers that were sensitive to inflation,” he said. “People were questioning ‘Why is this in my portfolio?’ And we said we don’t know exactly when inflation is going to happen. But, what we were able to do was take that small allocation and increase it when we started seeing trends and economic indicators that would say inflation is coming. So that’s the benefit of that operational backdrop.”
The firms leaning on scale may concede that the specialists have a point — and, could become more specialist as time goes on. Both BlackRock and Goldman Sachs Asset Management, for example, have been in the news recently for lifting out investment teams and bringing them over to their OCIO business in part because they had specific capabilities.
For instance, when Bombardier hired GSAM as its OCIO last year, former members of the Bombardier Global Pension Asset Management team joined GSAM. Additionally, under Royal Mail’s OCIO arrangement with BlackRock in February, three investment staff, including CIO Ian McKnight, moved to BlackRock.
Both firms say they’re open to similar arrangements in the future.
“We have been able to grow our capabilities by bringing some teams in-house and our clients appreciate the continuity of working with the same people,” Mr. Marshall said.
GSAM’s Mr. Braude said the trend is also picking up globally. “We’re seeing more traction for lift-outs in the U.K., we have also seen it happen in the Netherlands. We did our first acquisition in 2015 and since then we have been quite active in the marketplace.”
Goldman Sachs had $246.8 billion in OCIO assets as of March 31, up 2.9% from 2022, making it the second-largest institutional OCIO firm with discretion in P&I’s database.