March 16, 2020
What’s the chief reason that institutional investors hire an outsourced chief investment officer? A quest for absolute return. That’s the key finding in our 2020 OCIO Survey, with 66% saying they sought that goal. That soundly beats de-risking (34%), which shows that an appetite for gains is exceeding that for caution amid the continuing bull market. The survey, which ended February 10, hasn’t fully reflected the possible influence of the coronavirus on investments. None of that’s to say that asset owners are oblivious to possible trouble. Some 68% believe that better risk management is important or very important—21% said it was not important.
The bulk of OCIO clients, namely 59%, farm out all of their portfolios, versus 21% who outsourced less than 25% of their holdings. That’s a sort of barbell distribution, showing there’s not a lot of middle ground in outsourcing: You are either all into OCIO or you keep a very large chunk in-house.
The challenge of those who dispatch only a minority of their assets to third parties, certainly, is that they need to keep a close eye on what the OCIO managers are doing, so they aren’t investing at cross-purposes or over-concentrating in one area.
Outsourcing the whole $922 million in endowment enables Arizona State University Enterprise Partners to “get a holistic view of the portfolio,” said the organization’s CIO, Jeff Mindlin. For the fiscal year ending last June 30, the ASU entity had a 10.2% return.
Our survey presents a telling snapshot of the OCIO terrain. Corporate pensions made up 40%, with defined benefit plans at 28%, and public pension programs at 17%. Some 35% had portfolios of $5 billion or more, and 30% were in the $1 billion to $5 billion range. Not a single respondent admitted to having performance fees. —Larry Light
Mercer is ranked #1 in global OCIO assets.
Download the full article to view survey results.