Active management is feeling more love these days. With the surge in institutions looking for investment help, there is new-found affection for the experience, judgement, and human touch provided by outsourced CIO firms.
But with opportunity pounding on the door, why do so few OCIOs hunger for growth? Where’s that entrepreneurial drive, that vision, passion, and focus on becoming the biggest and the best?
We have been tracking the industry for decades and have yet to see a single independent OCIO provider break through the one-hundred billion AUM level. Not one. Most will never reach twenty billion.
The OCIO business, as defined by Commonfund is…the practice of delegating a significant portion of the investment office function to a third-party provider, typically an investment management or consulting firm.
The industry, with $2.38 trillion in assets as of our latest report, is bifurcated, highly diverse, intensely competitive, and the largest six providers on our annual OCIO list – Aon, Blackrock, Goldman Sachs, Mercer, Russell and Willis Towers Watson – with their size and resources dominate the largest segment, corporate pensions.
In this segment, reality bites. There are only about three-hundred remaining internally managed corporate pensions over a billion AUM and those that outsource will chose one of the big six mentioned above or a major insurance company. Boutique OCIOs have no chance for the business.
Most new prospects dwell in the sub-$1 billion realm – endowments, foundations, health systems, charities, and associations – and smaller sub-$200 million customers including ultra-high-net-worth families and nonprofits.
The good news is that there are about fifteen hundred colleges and universities in the US (about one-hundred-fifty endowments over $1 billion and another one-hundred-fifty in the $500 million to $1 billion bracket) and several thousand foundations, health systems, charities, and associations.
The bad news is that most of the eighty-three firms on our list compete in this space along-side RIAs, brokers, and advisors. Literally hundreds of rivals.
Most of these competitors would be better off buying, selling, or merging with other providers instead of grinding away with little gain.
Here’s why.Read More »