05/09/2022

Our latest Outsourced Chief Investment Officer report features a list of 104 OCIO firms, each with updated contact information and AUM numbers.  It’s the most comprehensive and accurate available.

For the nine months ending December 31st, 2021, the managers on our list added $440 billion (a 13.46% gain) in AUM, totaling a record $3.711 trillion dollars in discretionary outsourced assets.

But after years of steady growth, it’s apparent there’s a shakeout underway.

As we noted in our February 2021 OCIO update, discretionary asset managers without products to sell are notoriously hard to scale.  Brilliant, original strategies lose their potency when they are widely copycatted. Or, a strategy works in one season, in one kind of market, but not in another.

That’s why so many OCIOs and RIAs now have private equity partners or reside within much larger financial or consulting organizations.

As Jon Hirtle, executive chairman of OCIO provider Hirtle Callaghan, remarked to Alicia McElhaney in a recent Institutional Investor article, “In business school, they teach you there’s a group of pioneers. If it works, there’s a flurry of copycat activity. And then there’s a shakeout and a consolidation.”

From our vantagepoint, it looks like the industry is entering the consolidation phase.

Wealth management M&A activity reached an all-time high in 2021, with an announced 307 transactions according to Echelon Partners’ 2021 RIA M&A Deal Report.

Over the last sixteen months, CapTrust acquired Ellwood Associates, iM Global Partners bought Litman Gregory, New Providence joined The Colony Group, Focus Financial bought CornerStone, and US Bank swallowed PFM – five firms on our last OCIO list.

And from what we hear there is plenty of dry powder and amenable prospects waiting in the wings.

Barron’s reported last November that “KKR is taking a stake in Beacon Pointe Advisors, the largest female-led RIA, in a deal that values the acquisitive firm at over $1 billion.”  This after KKR invested in and then exited from Focus Financial, another RIA and OCIO aggregator.

Given this merger merry-go-round, we took our cue from Institutional Investor and spoke with Mr. Hirtle, “a pioneer in the outsourced chief investment officer business,” as Ms. McElhaney put it.

What did he think about the buy-out mania? Is the independent OCIO model still viable? And if so, how does one keep the “barbarians” at bay?

We include our conversation with Mr. Hirtle below.

What about the elephant?

Our data suggests that demand for outsourced investment services will continue to grow at a healthy rate, but that new entrants face formidable odds.

Why?  Because there’s an elephant in the room.  Concentration.  A handful of managers control the bulk of the money.  

Just eight providers – Aon, Blackrock, Goldman Sachs, Mercer, Russell, SEI, State Street, and Willis Towers Watson – manage well over half the OCIO assets, $2.073 trillion of the $3.711 trillion AUM.

That’s fifty-seven percent of the outsourced pie.  And they kept a tight hold on their market share in our latest reporting period, securing forty-eight percent or $211 billion of the $440 billion gain.

Big Eight ranked by AUM Size

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Mellon’s John Hull Tops Non-Profit CIO Pay Rankings

Institutional Investor – March 15, 2012  •  Frances Denmark

Charles Skorina had a problem. As an executive search consultant specializing in filling investment officer holes at pension funds and endowments, he was often asked by boards of trustees to produce metrics to aid in candidate comparisons. But in his 30 years in the search business, such data had proved hard to come by ­— that is, until late January. That’s when Skorina’s “CIO Performance-for-Pay” ranking (see chart below) hit the institutional investor zeitgeist.

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Bloomberg: Help Wanted on Campus

By Gillian Wee  Aug 18, 2010

Bloomberg Markets Magazine

 

Top U.S. universities are looking for a new breed of investment manager who can be nimble in tough times.

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