Pensions & Investments: Interest in OCIO Remains Strong, but Growth Slower Than Anticipated
NEPC’s Steve Charlton was quoted in a recent Pensions & Investments article which covered the findings of NEPC’s 2022 Governance Survey. View the article on Pensions & Investments’ site here.
Institutional investors are eager to utilize the services of outsourced chief investment officers, but the market is not growing as quickly as anticipated, according to a new report from investment consultant NEPC.
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“As investment programs have grown over the past several years, we’ve also seen firsthand the increased desire and need for ways to streamline management and operational functions,” said Steve Charlton, partner and head of client solutions at NEPC, in a news release announcing the survey results. “There are often good reasons to maintain trusted advisory relationships, which has slowed the overall progression to OCIO. Some clients look to maintain decision-making responsibility or hand off only portions of the governance process, whereas others have decided to move entirely to OCIO. We believe advisory and OCIO can co-exist within our firm and intend to provide the best services consistent with our clients’ objectives.”
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Institutional Investor: Endowments and Foundations Increasingly Want Their Top Advisors to Act Like OCIOs
NEPC’s Sam Austin and Steve Charlton were featured in a recent Institutional Investor regarding the findings of NEPC’s 2022 Governance Survey. View the article on Institutional Investor’s site here.
Institutional investors increasingly want their most trusted advisors to function like outsourced chief investment officers.
In the next five to seven years, a third of endowments and foundations want their most trusted advisors — usually investment managers — to handle their portfolios like OCIOs, according to NEPC’s 2022 governance survey published Thursday. The survey included responses from organizations including public and corporate pensions, foundations, defined contributions plans, healthcare organizations, and endowments.
This increasing reliance on managers and consultants was recorded across fund types, with 19 percent of healthcare funds and 17 percent of defined contribution funds also anticipating that their most trusted advisors will act like OCIOs in the near future, up from 10 percent and 13 percent, respectively.
Among endowments and foundations, 26 percent said they currently view their most trusted advisors as investment managers, which NEPC defined as a “consultant or manager who handles everything like an OCIO.” Thirty-two percent said they see their most trusted advisors taking on this role in the next five to seven years.
“That’s a trend that’s been going on for a while now,” Steve Charlton, NEPC partner and head of client solutions, told Institutional Investor. “At least in the last six or seven years, endowments and foundations have been turning more and more to OCIO-type organizations to manage their assets.”
As institutions attempt to navigate increasingly-complex markets and develop more advanced portfolios with exposure to alternative investments like hedge funds, private equity, and private debt, they may need additional expertise from OCIO providers who have more experience in these areas, Charlton said.
Among the asset owners surveyed by NEPC, 43 percent described their most trusted advisor was a partner, someone with whom they work closely to develop their investment programs. About a quarter said they have advisors (“I make the decisions, but almost always do what they recommend”), while 15 percent said they use a consultant as a key source for information and perspective. Twelve percent identified their most trusted advisor as an investment manager who acts like an OCIO, with 17 percent expecting their top advisors to take on this role in the next five to seven years.
“This survey is reinforcing our belief that more and more investment committees or brand sponsors or whoever it might be are interested in turning over additional responsibilities to their trusted advisor,” Charlton said.
NEPC also asked respondents about the degree to which they consider diversity, equity, and inclusion issues — something which 80 percent agreed was an important consideration in their investment programs.
However, respondents from pension plans (both corporate and public), defined contribution plans, and insurance organizations were slightly less likely to indicate DEI as an important aspect of their program. Specifically, 38 percent of respondents from these organization types said that DEI was not important, significantly higher than the average of 20 percent.
Meanwhile, endowments and foundations were slightly more inclined to say that DEI initiatives were “extremely important” to their organizations. Nineteen percent of respondents from endowments and foundations answered “extremely important” versus 18 percent overall.
This discrepancy may be a result of endowments’ and foundations’ more recent adoption of DEI issues compared to pension plans, according to Sam Austin, NEPC partner and governance board member. Austin said pensions were at the forefront of DEI initiatives in the eighties and nineties. Other institution types have started to catch on in more recent years, particularly after the murder of George Floyd in 2020 and subsequent civil rights protests.
“Endowments, foundations, and healthcare organizations have increasingly caught fire over this issue over the last two and a half years, going back to that catalyzing event of George Floyd,” Austin said.
Austin said endowments and foundations now place a greater emphasis on aligning their organizations’ missions with their investment portfolios than they did ten or 15 years ago.
“The intensity of the issue is more front and center and it’s a fresh topic for the endowment and foundation world, whereas it’s been an issue that’s been on the table for pensions for much longer,” Austin said.
Pensions & Investments: Market Shocks Prompt Allocation Overhauls
NEPC’s Aaron Chastain was quoted in a recent Pensions & Investments article to weigh in on how corporate pension plan portfolios in the U.K. & U.S. have been distorted by upheaval. View the article on Pensions & Investments’ site here.
Corporate pension fund portfolios in the U.K. and U.S. that have been distorted by recent market events are set for an asset allocation overhaul. A combination of rising interest rates leading to falling liabilities, plus increased needs for liquidity in portfolios means asset allocations are, in some cases, no longer serving their intended purpose on either side of the pond. Sources said pension fund sponsors now have an opportunity to further derisk portfolios, with a view to completing a risk transfer or achieving self-sufficiency.
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There are also conversations among U.S. plans on what constitutes an appropriate interest rate hedge, since it “now takes less dollars to achieve the same interest rate hedge,” said Aaron Chastain, Atlanta-based senior consultant at NEPC LLC.
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NEPC’s Mr. Chastain is also seeing some clients reducing commitment sizes but not stopping investments altogether. They “definitely don’t want to eliminate those relationships (with fund managers) for a shorter-term market event in terms of an asset allocation perspective,” he said.
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Bloomberg: Stocks See Late-Day Rebound After Unnerving Twists: Markets Wrap
NEPC’s Phill Nelson was quoted in a recent Bloomberg article to discuss what to expect from the 9/21/22 Fed meeting’s announcement on interest rates. View the article on Bloomberg’s site here.
Stocks pushed higher in the final hour of New York trading, with a rally in megacaps like Apple Inc. and Tesla Inc. driving a rebound that followed the worst weekly rout for the market since mid-June.
Major equity benchmarks had a tough time finding direction Monday as traders geared for another super-sized US rate increase amid fears on whether the Federal Reserve could overtighten and raise the odds of a hard landing. Treasury 10-year yields hovered near 3.5% while the two-year rate, which is more sensitive to imminent policy moves, hit the highest since 2007.
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“The question to focus on isn’t whether the Fed will hike rates by 75 basis points or 100 basis points,” said Phillip Nelson, head of asset allocation at NEPC. “What we’re looking for is how aggressive Powell will be in the next six to 12 months. The messaging we get in the next few weeks could be a bigger data point and a shock to investors.”
Pensions & Investments: ESG: Multi-Asset Investing
NEPC’s Dulari Pancholi was featured in a recent Pensions & Investments article to share top ESG themes as well as developments in data, benchmarks and regulation that are powering continued inflows into ESG investing across both public and private assets. View the article on Pensions & Investments’ site here.
Environmental, social and governance investing has evolved far beyond a process based on exclusion to one that is inclusive, activist and focused on alpha. Institutional investors are addressing the dual purpose — to effect change and generate alpha — via a range of sustainable investment approaches, typically impact funds, asset-specific ESG strategies or multi-asset portfolios.
Across all approaches, the state of investing based on ESG factors is robust. Global ESG assets under management were $35.3 trillion in 2020, up 15% from $30.6 trillion in 2018, according to the Global Sustainable Investment Alliance. ESG’s portion of total global AUM rose to 35.9% from 33.4% in the same period.
GSIA projects global ESG AUM will rise 16%, to $41 trillion, this year; and 22%, to $50 trillion, by 2025. The message is clear: ESG investing is here to stay, and its future is bright
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While a multi-asset strategy can be one of several ways to implement an ESG investment approach, Dulari Pancholi, CFA, CAIA, principal and head of credit and multi-asset at NEPC, said that she sees multi-asset as the right approach for asset owners today.
“The way ESG investing has evolved almost requires you to take a multi-asset approach,” she said. “The investible universe has expanded so much beyond the listed stocks where ESG originated. Now there are asset classes like private debt and private markets, or debt more generally, [and they] are tougher to work with” in terms of the availability of ESG products and challenges in ESG data collection. “In the fixed-income space, for example, you now have green bonds, which are an evolution of green revolving-loan facilities. There are term loans that are tied to sustainability metrics and sustainability-linked bonds that are tied to the ESG performance of the portfolio or underlying company.
“So if you’re trying to build an ESG portfolio that can integrate some or all of the available asset classes, you need a toolbox that can hold a lot of different tools. That’s what multi-asset is all about,” Pancholi said.
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The Wall Street Journal: Almost Half of Stock Pickers Beat the Market in Early 2022 Selloff
NEPC’s Tim McCusker was quoted in a recent Wall Street Journal article to discuss how active managers have benefitted from monetary tightening in early 2022. View the article on The Wall Street Journal’s site here.
Nearly half of large-cap U.S. stock-picking funds beat the S&P 500 during the brutal selloff in the first half of the year, putting active managers on pace for their best year since 2009.
Bruised by sky-high inflation and rising interest rates, the S&P 500 fell 20% on a total return basis, which includes dividends as well as price changes, in the first six months of 2022. That was the index’s worst first half in data going back to 1988, according to Dow Jones Market Data.
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“In the first half, active managers being compared against the market may have benefited from the environment of monetary tightening as the Federal Reserve began raising interest rates”, said Tim McCusker, chief investment officer at investment consulting firm NEPC.
“That’s a helpful thing for active managers,” he said. “Instead of money just flooding into equity markets and pushing all assets higher, you’re starting to see some differentiation.”
Click here to continue reading the full Wall Street Journal article.
NEPC Continues Expansion of Corporate Consulting Teams, Adding Leadership
BOSTON–(BUSINESS WIRE)– NEPC, a leading research-driven investment consultant with $1.5 trillion in assets under advisement, has expanded its Corporate Consulting practice group by acquiring a team from Goldman Sachs Asset Management (GSAM). The additions include three new Principals – Alison Lonstein, Matt Maleri, and Joe Nankof – and a new Senior Consultant, Emma O’Brien, all of whom will support clients across NEPC’s business.
Prior to joining NEPC, Lonstein, Maleri, O’Brien, and Nankof served as Consultants and Lead Portfolio Managers at GSAM. The team formed while at Rocaton Investment Advisors, which was acquired by GSAM in 2019.
“Bringing this team on board is a direct reflection that the best consultants in the industry continue to choose NEPC as a place to grow,” said Craig Svendsen, Partner and Corporate Practice Director at NEPC. “This team’s experience and skillset strengthens our position as an industry-leading strategic partner capable of helping our clients weather volatile markets.”
Today’s news is part of a broader trend of former executives from Aon, Mercer, and Meketa recently joining NEPC’s leadership team.
Lonstein and O’Brien will join NEPC’s Defined Contribution practice group, while Maleri and Nankof will join NEPC’s Corporate Defined Benefit practice group. The new team members will also help support NEPC’s healthcare and insurance clients.
“We’ve had the utmost respect for NEPC’s leadership for years and are excited about joining at such a critical time for clients,” said Nankof. “As we began considering our next step, we wanted to find an independent firm with a close-knit, client-first culture. NEPC provides that culture and is an excellent fit on many different levels.”
For more information about NEPC’s leadership team, click here.
ABOUT NEPC, LLC
NEPC, LLC, is one of the country’s leading investment consulting firms, servicing 403 retainer clients with $1.5 trillion in assets1 with $301.2 billion in alternative assets2. Combining a proprietary research team dedicated to the long-term challenges facing investors with our unique client-centric model, NEPC builds forward-looking investment portfolios for institutional investors and ultra-high-net worth individuals. To learn more about NEPC, visit nepc.com.
1 As of 4/1/2022
2 As of 12/31/2021, NEPC provides some form of advice to all clients counted but does not advise all clients on all asset classes.
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Global Investment Leaders Podcast: Guiding the World's Largest Employee-Owned Institutional Consultant
NEPC Managing Partner Mike Manning joined Rosemont CEO Chas Burkhart on the latest episode of the Global Investment Leaders podcast to share his perspective on the firm’s evolution since its founding in 1986, how NEPC is positioning for the future, and more.
Listen now:
NEPC Appoints Former Meketa Executive To COO Role
BOSTON–(BUSINESS WIRE)– NEPC, a leading research-driven investment consultant with $1.4 trillion in assets under advisement, today announced that Kellie Kane will join the firm as Partner and Chief Operating Officer (COO), effective May 2, 2022. Kane will be responsible for overseeing the execution and implementation of NEPC’s forward-looking operational strategy, including the firm’s performance reporting, technology, and discretionary operations teams. She will be an active member of the firm’s Executive Team, and will report directly to Managing Partner Mike Manning.
“I am happy to announce that Kellie Kane has joined our team as Partner and Chief Operating Officer,” said Manning. “Her skillset and industry experience make her uniquely suited to this role. I know she will play a large part in helping us achieve our strategic operational goals.”
Prior to joining NEPC, Kane spent 24 years at Meketa Investment Group where she most recently served as Partner and Chief Operating Officer. In this previous role, Kane oversaw a large staff across teams like IT, systems development, data, performance reporting, investment analytics, administrative, and transfer operations.
“Joining NEPC means I’m joining a firm with an incredible reputation, earned through its employee-led culture and client-focused philosophy,” said Kane. “I know I’ll be connecting and collaborating with dynamic leaders here – leaders who are just as passionate about improving the financial lives of their clients as I am.”
For more information on NEPC’s Leadership Team, click here.
ABOUT NEPC, LLC
NEPC is an independent investment consultant and private wealth advisor, serving over 400 retainer clients and $1.4 trillion in total assets. Combining a proprietary research team dedicated to the long-term challenges facing investors with our unique client-centric model, NEPC builds forward-looking investment portfolios for institutional investors and ultra-high-net worth individuals. To learn more about NEPC, visit nepc.com.
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