Steven F. Charlton was featured in a recent Pensions and Investments article commenting on NEPC’s organic growth. View the article on Pensions and Investments’ site here.
The year ended March 31 was a strong one for OCIO managers, many of which had double-digit growth in assets under management thanks to a wave of new clients and strong performance.
The combination of buoyant market returns in the last three quarters of 2020 through the first quarter of 2021 and higher investment in OCIO strategies brought the industry to a new record total of $2.46 trillion in assets managed worldwide with full or partial discretion for institutional investors as of March 31, data from Pensions & Investments‘ latest industry survey showed.
Market returns were a significant driver of OCIO manager growth in the year ended March 31. The S&P 500 Total Return index was up 56.4% in the year ended March 31; AlphaNasdaq OCIO Broad Market index, up 30.7%; and Bloomberg Barclays U.S. Aggregate Bond index, up 0.7%. In sharp contrast, the S&P 500 was down 6.9% the prior year, the AlphaNasdaq OCIO index was down 3.4% and the Bloomberg Barclays U.S. Aggregate Bond index was up 8.9%.
Timothy J. Braude, managing director and global head of OCIO at New York-based Goldman Sachs Group Inc., said in an interview that in 2020 “our OCIO clients experienced a very fast drawdown and a very fast recovery. Equities were up 50% to 60%, and we and our clients had a very big year. 2020 was like a supercharged version of what we saw after the global financial crisis in 2008.”
“The really rapid recovery gave investors a chance to step back and decide what they wanted to do about moving away from in-house portfolio management and into an OCIO arrangement,” said Mr. Braude, adding that Goldman Sachs had “a very strong year” of organic OCIO growth in the year ended March 31.
22.7% growth
Total OCIO assets managed for worldwide institutions with full/partial discretion grew 22.7% over the year, compared with a rise of 8.4% in the year ended March 31, 2020, to the previous peak of $2.01 trillion.
Over the five-year period ended March 31, growth of worldwide OCIO AUM was up 90.5% compared with 54.6% for the five years ended March 31, 2020.
For periods ended March 31, worldwide OCIO assets managed with full discretion for institutional investors totaled $1.95 trillion, up 23.8% for the year and up 124.5% for the five-year period, P&I data showed.
After the outbreak of COVID-19 last year when work, home and social life became difficult, “there was recognition among asset owners that things had gotten too complicated for an internal investment committee to handle. On the corporate side, employees saddled with dealing with liabilities and other issues decided they weren’t being paid to manage a defined benefit plan and started looking at OCIO options,” said Steven F. Charlton, partner and director of consulting services at NEPC LLC, Boston, in an interview.
“Markets helped, but our growth was mostly organic,” Mr. Charlton said.
NEPC had the second-highest growth rate among OCIO managers surveyed, up 90.9% to $53.7 billion in the year ended March 31, moving the firm to the 12th spot in P&I‘s ranking from 18th.
Industry sources, including specialist OCIO search consultants, said they’ve seen a spike in interest from new OCIO investors or existing OCIO investors interested in manager upgrades.
“There’s been a huge pick up in OCIO search activity. OCIO is gathering momentum,” said Bradley H. Alford, founder and CEO of OCIO search firm Alpha Capital Management LLC, Atlanta, in an interview.
The new growth spurt in OCIO search and hiring activity in 2021 is in sharp contrast to March, April and May 2020 in the aftermath of the COVID-19 outbreak when many asset owners shelved their OCIO search plans to deal with other more pressing work issues, Mr. Alford said.
Later in 2020, the level of search activity became so frenetic that Mr. Alford had to stop accepting new OCIO searches and created a waiting list, noting that “the crush is easing a bit so we can take on more searches now.”
Mr. Alford said the majority of Alpha Capital’s OCIO searches in 2020 and so far in 2021 were for endowments and foundations.