It’s no secret that institutional investors face a range of current challenges, from inflation and rising interest rates to bank crises and international conflict. Add in regulatory changes and the road ahead seems quite uncertain for organizations managing investment portfolios. Along with macro trends, investors face more mundane everyday challenges. Administrative duties pile up, pulling focus away from strategic thinking. Short-term concerns take precedence over long-term planning. Implementation complexities, like choosing managers, can create barriers.
As these trends continue and volatility persists, the benefits of an outsourced chief investment officer (OCIO) become clear. Institutional investors that want to maximize investment opportunities while minimizing risk, or gain the support needed to reach their strategic endgame objectives, can do so without facing investment implementation and administrative demands, as summarised by AON.
Once a niche subsector, the OCIO is now the fastest-growing segment in asset management and by 2026, #Chestnut reports the industry segment to reach a global total of USD 4.15 trillion. The latest example where #BAE Systems’ pension scheme has appointed #GSAM to oversee its £23bn of defined benefit assets, the largest mandate of this kind in the UK to date. Earlier this year Royal Mail Pension Plan selected BlackRock to manage its £8.8bn in DB scheme assets. Last year the £13bn National Grid UK Pension Scheme appointed Russell Investments to an OCIO mandate; BlackRock was appointed by insurer AIG to manage up to $150bn in fixed income and private assets; and UK asset manager Schroders announced a new £10bn mandate managing energy provider Centrica’s pension schemes. In 2021, British Airways transferred £21.5bn in its two main pension schemes to BlackRock, at the time the largest such deal in the UK.
Understanding the total costs of the overall portfolio is crucial. Looking exclusively at the OCIO fee and not fully understanding the investment manager fees is a mistake, as it obscures what is usually the larger portion of the costs borne by the organization. The investor needs to decide the premium they want to pay for the services provided and how important they are for their organization.