To enhance performance, portfolio management and reporting as well as to automate many functions of managing outsourced investment strategies, BlackRock and other large OCIO managers are investing heavily in technology to increase their capacity to meet the coming surge in demand.
"Technology is critical to the growth of OCIO firms and is a way for managers to differentiate themselves. The big firms, those that will be able to afford the technology spend, will prevail," said Andrew H. McCollum, managing director of investment management at investment industry researcher Greenwich Associates LLC, Stamford, Conn.
BlackRock Inc., for example, will utilize Aladdin, the firm's internal risk management and reporting system, to help the firm develop customized OCIO strategies on a large scale, said Ryan Marshall, managing director and global head of client portfolio solutions at New York-based BlackRock.
"We see 'mass customization' as the next wave of outsourcing, the ability to deliver portfolios for multitudes of clients, built to meet those clients' unique objectives and constraints, and implemented as a cost-efficient solution," he said, adding "this evolution in asset management is only possible through technology; i.e., technology platforms which not only enable managers to generate insights to create alpha, but also to manage large numbers of customizable portfolios with a 'whole portfolio' view combined with transparent reporting, delivered at scale," Mr. Marshall said.
BlackRock ranked fifth on Pensions & Investments' list of OCIO managers with worldwide assets under management with full/partial discretion for institutional clients as of March 31 at $139.6 billion, up 9.7% from the previous year.
Richard Joseph, Boston-based U.S. distribution leader for Mercer LLC's wealth consulting business, agreed and predicted an industrywide move to mass customization over the next 12 to 18 months.
"We're living in a very customized world," he said, noting that people are beginning to expect a level of customization in many areas of their lives.
"We're going to see managers that have the right technology provide mass customized advice and management for target-date funds and other OCIO strategies," Mr. Joseph said.
Mercer has been building out its technology platform to create upgraded data and trading systems; more specific, granular reporting for investment clients; and more analytical capabilities for the firm's portfolio managers in the OCIO business and for traditional consulting.
Mercer retained the top spot in P&I's ranking of OCIO managers by worldwide assets managed with full or partial discretion in the year ended March 31 with $260.5 billion, up 13.3% over the prior year.