Rather than managing investments in-house, more and more institutional investors are outsourcing management to fiduciary managers and outsourced chief investment officers (OCIOs). In terms of the latter, OCIO mandates have risen more than 90% to $2.46 trillion globally over the past five years, according to a Pensions & Investments survey.
Moreover, Simon Partridge, head of fiduciary management solutions at Russell Investments, says there has “definitely been an increase in activity” since the end of 2020. “We’re seeing multibillion pound schemes now going into some form of outsourcing,” he adds.
IC Select recently found that UK pensions funds choosing outside fiduciary managers are seeing growth in pension fund sizes.
Key drivers for outsourcing are the market volatility caused by the COVID-19 pandemic and cutting costs.
The proliferation of outsourcing, though, is causing concerns in the asset management sector. Partridge: “The key thing when it comes down to conflicts is, is that providers are more likely to choose their own internally managed offering over another’s? Are they choosing more expensive active strategies, and, if they get chosen, are they more likely to outperform net of fees?”