The market for outsourced investment teams is “red-hot” thanks to the darkening outlook for future returns, with allocators of capital increasingly delegating entire multibillion-dollar mandates to outside money managers.
Big corporate or public pension plans, endowments and foundations usually have in-house investment divisions, and only hand out specific mandates to external money managers.
However, smaller entities lacking the scale to employ expensive internal investment teams often outsource the entire management to investment consultants such as Mercer or asset managers such as BlackRock, which have specialist “outsourced chief investment officers”, or OCIOs.
The OCIO industry is now growing in size and scope, as bigger companies and institutions outsource pools of money to these specialists given the increasingly treacherous investment landscape.
“It’s red-hot,” said Michelle Seitz, chief executive of Russell Investments, an asset manager with a big OCIO business. “There’s a lot of activity. It’s one of the fastest, if not the fastest growing spaces in the industry.”
Globally, there was about $2tn of assets managed with full or partial discretion by OCIOs by the end of March 2020, according to an annual survey by Pension & Investments, an industry magazine. That is nearly twice the size of the industry in 2013, and its growth is accelerating.
Industry executives say the business has become increasingly competitive. Fees can vary widely — both in scale and structure — but are generally healthy and growing at a time when many other corners of the investment industry are under pressure. As a result, big banks, money managers and dedicated OCIOs are expanding to fight for mandates.
“It’s such a competitive battlefield,” said Stan Miranda chair of Partners Capital, an OCIO firm. “You’ve got the banks, you have the consultancies, you have the asset managers and you have specialists like us.”
Although the economics vary between institutions, the typical OCIO mandate has usually been less than $1bn — a size where it often does not make sense for a university endowment or small pension pot to hire their own investment staff.
More than half of all OCIO mandates in the US are for less than $100m, according to Cerulli Associates. Russell Investments estimates that 76 per cent of institutional investors with assets under $10bn have not yet outsourced their investment activities — leaving plenty of room for the industry to grow.
However, there has also been a recent flurry of mandates for $10bn or more, according to industry executives, and many expect the trend towards bigger OCIO deals to pick up in pace.
“The trend towards outsourcing will only continue to accelerate,” Larry Fink, BlackRock chief executive, said on the asset manager’s recent earnings call. “More clients are looking to outsource their entire portfolio as regulations intensify, operating cost-wise and investing grows more complex.”
BlackRock recently won a $30bn OCIO mandate to manage British Airways’s pension plan — the biggest such deal record in the UK, according to the asset manager — and Fink predicted that this would become “a catalyst for more transformational change in the industry”.
John Waldron, president and chief operating officer of Goldman Sachs, recently said that its asset management division was also seeing a “very strong” pipeline for OCIO services.
Industry executives say that one of the major drivers is the increasingly gloomy return expectations for the coming decade, given how high valuations are across the board today. While buoyant markets have swelled the size of many pools of capital, the trickier outlook makes it tempting to outsource investment management to bigger specialists.
Based on long-term patterns of market valuations and subsequent returns, researchers at investment group AQR estimate that a traditional portfolio split between 60 per cent in stocks and 40 per cent in bonds will in the coming 5-10 years return 2.1 per cent annually after inflation.
GMO, the asset manager founded by Jeremy Grantham, is even more bearish. Given how frothy markets currently are, it forecasts that every major asset class except certain corners of emerging market stocks will lose money in real terms over the coming seven years.
While the vast majority of institutions with $10bn or more have in-house investment teams to manage the money, a growing acceptance of outsourcing across the board is likely to change that, industry executives argue.
The interest in hiring OCIOs is particularly strong among corporate pension plans — where running sometimes sizeable pools of money can be a troublesome distraction from business’s core focus — but public retirement programmes, foundations and university endowments are also increasingly looking to do so, industry executives say.
A lack of internal resources and “better risk management” are the main reasons to use an OCIO, according to a 2020 survey by Chief Investment Officer, an industry magazine.
“It’s not their main business, and they don’t have all the tools necessary in-house to maximise the opportunities,” Seitz said. “In a low interest rate environment, ensuring that you’re able to meet long-term liabilities has become more complex.”
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
