Total reported outsourced chief investment officer (OCIO) assets managed by U.S.-domiciled firms, listed by Tucson, Ariz.-based executive recruitment firm Charles Skorina & Company, have grown 16% in just six months (October 2017 – March 2018) to now total approximately $1.97 trillion. By extrapolation, those assets under management are tracking to grow one-third over a full year, according to Charles Skorina, managing partner.
“Things are really growing in the OCIO market,” Skorina said. “Most assets are coming from corporate pension funds. Clients of the leading four OCIO providers are corporate pensions. All OCIO providers are growing, but the smaller providers (below the top-ten on our list) are mostly servicing non-profit institutions because corporate pension plans have more compliance requirements and smaller firms don’t have the resources and systems to meet corporate-plan requirements,” he said.
The percentage growth represents double the year-over-year increase the firm measured for 2017 versus 2016, Skorina said, noting that almost all of the increase is organic growth at OCIO providers already covered by the firm. The firm covers 79 OCIO firms of an estimated 80 -100 providers in total in the U.S.
Skorina noted that the 79 firms include two new listings: Deutsche Bank with $15.5 billion and Ellwood Associates with $1.2 billion in discretionary OCIO assets.
Not all of the increase in assets is new-customer money, the firm said. “It was also a pretty good ride in the financial markets, so some of that increase represents investment returns,” Skorina said. In a few cases, there was a change in the way providers classified discretionary assets; or firms merged and the same money is now under a new letterhead, Skorina said. He conceded OCIOs deliver numbers to the firm on “the honor system” and that the firm does not attempt to disaggregate them into different categories. “But we’re confident that the lion’s share of that growth is new business. There’s no industry standard for reporting this information. But as near as I can tell, having done this list for 10 years, the numbers we have are the best available.”
Charles Skorina & Company has created two charts: The first chart ranks the Top 15 firms by percentage growth in assets, whether the firm is large or small. The second chart ranks the Top 15 firms in absolute dollar growth, which is dominated by the largest providers.
A women-led firm closes a big deal
Leading the pack in Chart No.1 is a pair of female money-managers at Edgehill Endowment Partners, a newish firm in New Haven. According to Skorina, the firm more than more than doubled its AUM by landing the Jewish Federation of Metropolitan Chicago, which outsourced its $1 billion endowment to Edgehill in November. Edgehill was started in 2013 by Ellen Shuman and Nina Scherago. Shuman is the former CIO of the Carnegie Corporation. Scherago was previously deputy CIO at TIFF, and she also worked at the Howard Hughes Medical Foundation.
The Pareto Principle strikes again
Leading the herd in Chart No.2 is Mercer, which has been the biggest OCIO on Skorina’s list for three years running. With $242 billion in OCIO AUM, Mercer owns 12% of all the money is this niche, according to Skorina. He said the firm has grown its OCIO stable by 26.5% over the last six months.
Russell, the second-biggest OCIO, had the second-biggest dollar growth over the half-year, and grew even faster than Mercer on a percentage basis.
The Pareto Principle states that roughly 80% of effects come from 20% of the causes. “In economics, we see that 80 percent of the taxes are paid by 20 percent of the taxpayers, with uncanny consistency. And anyone who’s worked in a big firm will quickly conclude that eighty (or more) percent of the useful work is accomplished by 20 (or fewer) percent of the workers, regardless of their titles. The 79 OCIOs on our list as a group grew 16% percent in six months, but the top 15 growers lifted their average AUM by 22.5 percent, as seen at the bottom of Chart #2,” Skorina explained.
He noted that 15 is almost 20 percent of the 79 firms on the firm’s list. “When we do the math, we see that the top dollar-growers added $236 billion AUM, while the whole list added just $276 billion. So, 86% of the AUM growth was produced by 19 percent of the firms. 86/19 isn’t quite 80/20, but close.”