The number of U.S. clients outsourcing also grew nearly across the board by investor type, which showed that managers were successful at bringing on new clients — and not just boosting the size of their existing OCIO mandates or reaping the benefits of market gains — to claim new assets.
In the U.S., managers responding to the survey reported 3,252 DC plan clients, up 66.3% over the year ended March 31. Firms reported 1,788 defined benefit clients in total, up 14% for the year; and 1,140 endowment clients, a nearly 15% increase.
Clint Cary, a Chicago-based managing director and the head of U.S. delegated investment solutions at Willis Towers Watson PLC, noted that "the DC space is a big growth area for (OCIO providers) in the industry," particularly as more plan sponsors grow comfortable outsourcing and OCIO firms gain an established track record.
The number of DC plans reaching $1 billion also is growing, which "just requires that much more time and attention to their (investment) solutions" — hence many moving to an OCIO provider, Mr. Cary said. As DC plans are getting larger, these asset owners are "starting to adopt an institutional approach to managing their programs, rather than the retail plans they started off as," he said.
OCIOs are also being tapped to help DC plans navigate the active regulatory environment. "In the DC space, it all about ERISA fiduciary standards. There's litigation that is always swirling around," Mr. Cary said.
For OCIO providers, the number of U.S. foundation clients remained flat, down 0.7% to 1,176 clients, the survey data found. But outsourced AUM among U.S. foundations rose 19.8% to nearly $58 billion.
Worldwide, managers' total number of institutional outsourcing clients grew 18.1% to 21,034 over the year.
The top three OCIO managers by worldwide full and partial discretionary assets remained unchanged this year, with Mercer LLC again retaining its No. 1 spot with $229.8 billion, an 8.4% increase in assets.
Russell Investments Group LLC, with $170.9 billion in assets as of March 31, retained its place at No. 2 on the list, seeing its assets rise by 4.4% year-over-year.Aon Hewitthird was Aon Hewitt Investment Consulting Inc., with assets growing 10.5% to $167.7 billion.
A longer-term analysis of P&I survey data reveals significant asset growth in the OCIO space over the past five years ended March 31, as managers' worldwide discretionary (full and partial) AUM with institutional investors rose 53.9% to $1.82 trillion.
Ryan Marshall, a New York-based managing director and global head of client portfolio solutions at BlackRock Inc., said that historically, its OCIO business largely consisted of mandates where the firm has partial discretion, and clients "wanted to maintain some dimension of control" over their portfolio.
More recently, however, BlackRock's growth in the U.S. OCIO market has helped boost its assets managed with full discretion, he said.
This year, BlackRock reported $127.2 billion in discretionary (full and partial) institutional AUM, rising to No. 4 on the list, up from fifth place last year. Over the year, BlackRock's assets in this channel grew by 20.9%.
"What's driving (this trend) is our growth in the U.S. is the most robust," Mr. Marshall said, adding that hiring managers with full discretion is more common in the U.S. than in Europe.
BlackRock reported an asset split of 77% full discretion vs. 23% partial discretion in the survey.
Mr. Marshall also noted that "the outsourcing industry has experienced fairly rapid growth over the past several years. Part of what is driving that growth is the challenging return environment."
As such, institutions have had to build portfolios with exposure to more asset classes, and, in many cases, seek outside investment advice to do so, he added.
"The trend that we're also seeing is the increased growth in clients wanting to add private asset classes in the portfolio mix," Mr. Marshall continued.