Higher inflation, increased volatility, difficulty reaching investment goals, and challenges in recruiting and retaining investment staff have institutional investors who five years ago wouldn’t have considered outsourced chief investment officers (OCIOs) looking at these solutions for the first time, says Cerulli Associates.
The firm also notes that demand is emerging from private wealth clients as they seek specialised investment knowledge and skill.
“While the OCIO market experienced a 9 per cent decline in assets under management from the year-end 2021 total, interest in OCIO remains strong thanks to its various benefits to clients—namely the ability to access higher-quality investments than those otherwise available to an asset owner on their own, the lower cost of OCIO compared to an in-house investment team, and the ability to implement changes to the investment portfolio more quickly than an investment committee. Private wealth firms seeking a more institutional-quality experience are showing increased interest and adoption of the model.”
Cerulli writes that although private wealth is the smallest OCIO client segment, it is projected to grow 16 per cent annually through the end of 2027, the most among all OCIO client types. “Given that the private wealth market is growing faster than the institutional market, the rate of projected OCIO adoption is not a surprise,” says Laura Levesque, director.
Alternative investment allocations held by many private wealth firms is one of the strongest factors driving demand. “Wealthier clients are consistently seeking institutional-quality investment opportunities as well as the extensive due diligence, special knowledge, and skill that OCIOs offers,” says Levesque. “While differences between a truly institutional client and a private wealth client (e.g., tax profiles) mean some adjustments will need to be made to service these clients, the future growth opportunity is very attractive to many OCIO providers,” she concludes.