More large institutional investors are taking notice of OCIO as an alternative to managing investment portfolios internally, according to industry veterans.
"The OCIO industry is going up market. We're seeing more mandates of $5 billion, $10 billion and $30 billion," said Rich Nuzum, president of Mercer LLC's investments and retirement business in New York, in an interview.
OCIO clients have more options for customization, including for fund structures and more access to in-demand money managers than smaller asset owners can command, he said.
Mr. Nuzum said he anticipates that "a lot more large investors will turn to OCIO, including endowments, foundations, health care, insurance companies and family offices."
Mercer managed a total of $380 billion as of March 31, of which $367 billion was managed in OCIO assignments managed with full or partial discretion for worldwide institutional investors. Mercer is the largest OCIO manager, according to Pensions & Investments' annual survey of OCIO managers.
"Previously, OCIO was considered a strategy for small- to midsized asset owners but the size of OCIO mandates definitely is rising," said Kevin J. Turner, managing director and head of investment strategy and solutions for Russell Investments, Seattle, in an interview.
Russell managed a total of $326 billion as of March 31, including $183.8 billion of OCIO assignments managed with full/partial discretion for worldwide institutional investors — which ranked fourth according to P&I data.
BlackRock Inc., New York, was awarded the industry's most recent mega-mandate by British Airways PLC, Harmondsworth, England, to run £21.5 billion ($30.3 billion) in OCIO structures for two defined benefit plans.
As of March 31, The firm's New Airways Pension Scheme had £19.4 billion of assets and the Airways Pension Scheme had £7.4 billion.
British Airways said in a news release that intensified regulation, rising operating costs, increased investment complexity, changing investment needs and mature defined benefit plans were the impetus for the move to an OCIO partnership with BlackRock.
Ryan Marshall, New York-based managing director at BlackRock and co-head of multiasset strategies and solutions, said in an interview that the British Airways move into OCIO management "was the biggest thing to have happened to institutional (investment) in the U.K. in years."
Mr. Marshall expects more large companies with internal investment management teams to turn to OCIO as defined benefit plans mature and their funding ratios rise.
"It's complicated for internal defined benefit plan staff to handle lots of regulatory issues and constant readjustments to the defined benefit plan," Mr. Marshall said.
BlackRock managed a total of $9 trillion, including $158.7 billion in OCIO assets managed with full/partial discretion for worldwide institutions as of March 31. BlackRock ranked seventh in P&I's OCIO ranking.
Last September, two European plans announced $1 billion-plus OCIO hires.
Civil Aviation Authority Pension Scheme, London, selected BlackRock to manage a £4 billion growth portfolio, replacing Russell Investments. Stichting Pensionfonds SNS REAAL, s-Hertogenbosch, Netherlands, hired NN Investment Partners to fiduciary management services for the €4.3 billion ($5.2 billion) pension fund.
TIFF Advisory Services Inc., Radnor, Pa., specializes in OCIO services for endowments and foundations and is seeing an uptick in interest from larger entities, said CEO C. Kane Brenan in an interview.
"Our pipeline is growing between three and five times faster than in 2020 and the size of mandates are rising, but we also continue to see interest from smaller endowments and foundations," he said.
TIFF managed $7.4 billion with full/partial discretion in OCIO strategies for worldwide institutional clients as of March 31, up 12.5% from a year earlier.
To Mr. Brenan's point, Texas Tech University System, Lubbock, launched a search in April for an OCIO manager to run the university's $1.3 billion endowment for a four-year contract.
The successful candidate is expected to be selected in July.
