By Charles Skorina
With 76 firms heard from, we’re now reporting $1.62 trillion in full-discretion assets under management by outsourced chief investment officer firms.
That’s a year-over-year jump of $292 billion – or 18 percent – since September, 2016.
The number of reported RFPs is also rising as institutions seek better returns and broader investment options. OCIO providers, in turn, are beefing up their resources to meet the needs of current and prospective clients.
For example: Alan Biller, Hirtle Callaghan, Goldman Sachs, and Cambridge Associates, among others, all continue to add headcount and expand capabilities.
Hirtle Callaghan is on the lookout for senior client-centric investment professionals, Goldman and Cambridge continue to mobilize and deploy their deep internal resources, and Alan Biller continues to build for the future and consolidate their commanding position in the multi-employer pension space.
Where are CIOs to come from?
As a search-committee chairman remarked to me recently, there are very few Joe Montanas to be had among nonprofit CIOs. The accomplished stars and no-brainer candidates are mostly immovable.
That’s obviously true among the mega-endowments. Seth Alexander, Andrew Golden, and Scott Malpass are happy where they are. Recent hires like Narv Narvekar and Britt Harris were well-known to Harvard and UTIMCO, respectively, for years. And in each case that is probably the only move either would have considered.
But much the same problem exists at smaller funds. Proven leaders are already well-paid; and/or they’re closer to the end than the beginning of their careers.
Paula Volent, for instance, has done a stellar job at the $1.3 billion AUM Bowdoin College endowment, and is still relatively young. But her board is – wisely – taking very good care of her. It’s unlikely that another fund that size could match what’s she’s making.
Talent is still available at a reasonable price, lots of it. But you have to look deeper and harder, and may need to move down to next-generation leaders who don’t have the long track-records that reassure nervous, picky boards. Next-gen candidates bring less hands-on experience and must survive harder scrutiny.
Big Fortune 500 firms like GE spend years and millions of dollars training their leaders for top jobs. Nonprofits don’t have the time or budget for that.
New CIOs must show up full-fledged ready to hit the ground running.
OCIO firms can offer the proven performance of those unobtainable super-stars at a reasonable price. And they can replicate the entire investment office with the process and structure to cope with the complexity of modern portfolios and mounting operational/regulatory burdens.
An OCIO isn’t necessarily the best choice for your institution, but it’s an attractive proposition for many. That’s why their AUM is still growing at that blistering pace.
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.