Outsourced CIO assets grow to $1.3 Trillion

Outsourced CIO assets grow to $1.3 Trillion

By Charles Skorina

With 74 firms reporting in, total outsourced CIO assets (managed with full discretion) have grown by $240 billion to $1.367 trillion since we published our last list in 2014.  That’s an increase of over 19 percent in two years, implying an annual growth rate of about 9 percent in that period.

Our friends at Chief Investment Officer Magazine think that OCIO assets grew 17 percent year-over-year from 2014 to 2015, and almost 10-fold (860 percent) over the eight years 2007-2015.  That eight-year growth ($91 billion to $873 billion) implies an annual growth rate (CAGR) of about 30 percent, but with growth beginning to slow down in 2014.

(Pedant alert: 860 percent growth over eight discrete periods gives us 33 percent annualized.  Continuous compounding gives us about 28 percent.  The underlying data is too soft for over-precision, so we split the difference.)

Our own independent surveys for 2014 and 2016 imply that recent year-over-year growth is now only about 9 percent.  So we agree with Chief Investment Officer Magazine that OCIO growth seems to be decelerating.

Nine percent annualized is still pretty brisk, but it’s not that much higher than the expected growth of managed global assets overall.  It suggests that the OCIO niche may be maturing, with a lot of the low-hanging fruit having been plucked.

My unscientific survey of OCIO managers suggests they’re a little more conservative in their own estimates.  They typically tell me they’re looking for 5 percent growth, but of course each firm has its own view.

They tell me that the number of RFPs is definitely up, but that potential clients aren’t always sure whether they want a fully-outsourced solution, a consulting/management hybrid, or a traditional straight-consulting arrangement.

The number of firms in this niche, however, seems to have plateaued and even fallen off a little in recent years.

Our list has grown from forty-five outsourcers six years ago in 2012 to seventy-nine in 2014 to seventy-four today.

Some have chosen to leave the business for one reason or another.  Those include: Fortress, Fiduciary Research & Consulting, and Salient Partners.  A few others either failed to respond to repeated requests or asked not to be listed.

And, at least three firms – Pacific Global Advisors, Marco Consulting, and Jeffrey Slocum & Associates – have been gobbled up by bigger firms: Goldman Sachs, Segal Rogerscasey, and Pavilion Financial respectively.  So their AUM lives on under another label.

As headhunters, we’re not surprised to see that steady growth in outsourced AUM leads to a steady flow of management talent into the OCIO firms.

From the point of view of potential clients, the number of firms competing hard for their business is a good thing.  Not only are the vendors competitive on price, they are building their bench with top talent.

For instance: Ranji Nagaswami, formerly pension advisor to Mayor Bloomberg in New York, has joined Hirtle Callaghan.

Also, Jay Willoughby has moved from the Alaska Permanent Fund to TIFF.  And Fund Evaluation Group has hired Michael A. Condon, former CIO of Southern Methodist University.

Even the Harvard endowment lost a senior exec to an OCIO when Jameela Pedicini left to join Perella Weinberg.

Our friend Sage Um delved into some of these moves.

The rich get richer:

When ranked by AUM, our list is a skewed, “long-tailed” distribution with the lion’s share of business up in the Top Ten firms.

Among our top ten firms in 2016, eight grew substantially over 2014 (Russell reported a slight decline, and Alan Biller reported no change).

Those big firms as a group grew much faster than the sector as a whole.  They grew $272.4 billion, or 48 percent; and they more than accounted for the total growth for the whole list.

Mercer moved up from 2nd-largest to 1st place with a gain of $54 billion, or 63 percent.

Goldman Sachs moved up from 13th to 4th-largest with a gain of $64 billion.  That’s an eye-popping 250 percent.  But that includes $20 billion it acquired by buying Pacific Global Advisors, which had been ranked 21st-largest in 2014.

Among firms outside our Top Ten, Callan Associates was the only firm adding at least $10 billion.  It more than doubled, growing AUM by an impressive 150 percent, from $8.4 to $21 billion.

Among the second-tier firms (between $10 and $31 bill AUM in 2016), Vanguard, Partners, Glenmede, Cambridge, Investure, and SECOR all reported impressive percentage growth over two years.  And most improved their ranking over this period.

This would be a good place to add some fussy qualifications.

First: These are their latest available figures as of early September, 2016.  They represent various cut-off dates; but in most cases are as of June 30.

Second: Period-to-period changes in full-discretion assets in this sector aren’t always what they appear to be.

These are un-audited, self-reported numbers.  They report them; we print them.

Also, what constitutes “full discretion” is, in the final analysis, defined by lawyers reading complex documents.  Various firms undoubtedly have slightly different standards for what falls into that box.  And, we know for a fact that some firms from time to time make their definition of “full-discretion” a little tighter or a little looser, because they’ve told us so.  And that causes reported full-discretion AUM to rise or fall, even if the money is sometimes just being moved between categories.

Here’s a little chart reporting growth among the big guys.  But potential clients should keep in mind that size is not necessarily a plus.  Some of the smaller and mid-sized firms on our list are highly experienced and staffed with outstanding investment managers.

Top Ten OCIO Firms by full-discretion AUM – 2016

Firm Full
Discretion $bn 2016
Full Discretion$bn 2014 Change: 2016-2014$bn Change: 2016-2014Percent
1 Mercer $140.0 $86.0 $54.0 62.8
2 Russell $112.0 $115.0 -$3.0 -2.6
3 BlackRock $103.0 $55.0 $48.0 87.3
4 Goldman Sachs $89.0 $25.0 $64.0 256.0
5 AON Hewitt $88.0 $45.0 $43.0 95.6
6 Willis Towers Watson $80.0 $58.0 $22.0 37.9
7 SEI $78.6 $69.3 $9.3 13.4
8 State Street $66.0 $47.0 $19.0 40.4
9 Northern Trust $56.1 $40.0 $16.1 40.3
10 Alan Biller $31.5 $31.5 $0.0 0.0
Top 10 total $844.2 $571.8 $272.4 47.6

The complete list may be found here.

Charles Skorina works with leaders of Endowments, Foundations, and Institutional Asset Managers to recruit Board Members, Executives Officers, Chief Investment Officers and Fund Managers. Mr. Skorina also publishes THE SKORINA LETTER, a widely-read professional publication providing news, research and analysis on institutional asset managers and tax-exempt funds. Prior to founding CASCo, Mr. Skorina worked for JP MorganChase in New York City and Chicago and for Ernst & Young in Washington, D.C. Mr. Skorina graduated from Culver Academies, attended Michigan State University and The Middlebury Institute of International Studies at Monterey where he graduated with a BA, and earned a MBA in Finance from the University of Chicago. He served in the US Army as a Russian Linguist stationed in Japan.

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