Some OCIO managers are comparing demand for their investment strategies during the coronavirus crisis to the sudden popularity of OCIO strategies after the global financial crisis more than a decade ago.
"It's the same dynamic (that) we saw in 2009. After that big drawdown, it took a quarter or two for organizations to examine their portfolio management practices and to evaluate whether there was a better model. The results of those evaluations supercharged the OCIO industry between 2010 and 2012," said C. Kane Brenan, president of TIFF Advisory Services Inc., Radnor, Pa., which specializes in serving endowments.
"Because real rates are lower, it will make it harder for endowments and foundations to hit their target, which typically is CPI plus 5%," Mr. Brenan said.
He said many RFPs that were launched earlier this year have been paused as endowments and foundations conduct internal reviews, but stressed that "we expect to see a lot more RFPs in the second half of this year and into 2021. A lot of the smaller, secondary (colleges) in the $10 million to $30 million range are looking at the OCIO model now."
TIFF managed $6.6 billion in OCIO assets with full/partial discretion. TIFF's assets were up 46.5%, partially because the firm included private investment assets in its total for the first time.
To Mr. Brenan's point about stalled searches, Cal Poly Pomona Philanthropic Foundation, Pomona, Calif., still hasn't selected an OCIO manager for its $100 million endowment and $32 million general account for a search that began in February.
Altoona, Pa. on the other hand, held off launching a search in March for on OCIO manager to run its three pension plans, with assets totaling $95 million, because of COVI9-19 concerns, and posted an RFP in June. Ken Drucker, city manager of Altoona, said in an email that "it's been at least two decades since a bid process was conducted. Doing one now is a matter of due diligence and fiduciary responsibility."
Extreme market crises also are a driver for larger institutions to take another look at moving to an outsourced investment program, said Richard Joseph, Boston-based U.S. distribution leader for Mercer LLC's wealth management business.
"It's very logical that defined benefit, defined contribution, endowments and foundations of all sizes are thinking about OCIO, especially during this pandemic. Staff are working from home, dealing with child care and trying to keep the lights on at work," Mr. Joseph said.
"We're seeing a lot more large investors contemplating OCIO on a very similar trajectory to what we saw in 2008 and 2009. When something like this happens in global markets, this is when the big plans switch," he said.
For institutional investors ready to move to an OCIO structure, manager selection and contracting processes have been accelerated, OCIO purveyors said.
"There are two categories of potential OCIO investors now: those that still are exploring the idea and those whose business are very challenged in the current environment and who need to act fast to get their defined benefit plan off their to-do list," said Kemp D. Ross, the Chicago-based global head of delegated solution at Willis Towers Watson PLC.
Because some asset owners have an urgent need to hand off the investment management of their asset pools, Mr. Kemp said the time frame for decision-making and implementing the move to an OCIO strategy is much faster for some investors than was the case in the past.
Mr. Kemp said most of Willis Towers Watson's growth is from defined contribution plans moving to an OCIO strategy for the first time, but added that about 20% of new hires are OCIO manager changes.
Willis Towers Watson moved up to the No. 4 spot in P&I's ranking from sixth through growth of 4% to $140.1 billion in worldwide assets managed with full/partial discretion as of March 31. (Willis Towers Watson provided worldwide and U.S. AUM as of March 31 but the rest of its data are as of Dec. 31.)
In addition to fairly steady RFP flow from new OCIO prospects, Aon Investments also is seeing demand for OCIO management from its traditional consulting clients, said Bryan R. Ward, senior partner.
"Beginning in April as the dust settled after the initial phase of the COVID-19 pandemic, we started to see increased interest from advisory clients. The driver was the same old story: The benefits of an OCIO approach are magnified during crisis periods like this," Mr. Ward said.