Money management .. owners of large assets ask for help to manage it

The investment management outsourcing industry thrives and offers great prices to asset managers as challenges in markets, floods of compliance and management requirements, and rising costs encourage owners of large assets to seek help.
The industry has doubled in size since 2016 and has grown to $ 2.46 trillion in assets under management worldwide.
It’s unlikely that the pace will slow down with a spate of recent mega-transactions. In March, BlackRock was hired by insurance company AIG to manage up to $ 150 billion in fixed income and private assets. British Airways transferred £ 21.5 billion in its two main pension schemes to the US Money Management Fund last year. In April, Britain’s Schroders announced a new mandate to manage the £ 10bn of money from energy provider Centrica’s pension plans.
A new study by Chestnut Advisor Group estimates that the industry will grow to more than $ 4 trillion in assets by 2026, as more flexible mandates open the industry to a wider range of clients than smaller retirement systems that initially sought outside help to invest in to manage.
While the US led the way in so-called OCIO transactions, which account for more than two-thirds of assets, growth in Europe was also remarkable.
“More than half of our growth over the past three years has been not in pensions, but in insurance, wealth and corporate,” said Jo Holden, global head of investment research at Mercer, one of the world’s largest foreign suppliers, with $ 388 billion. in assets under management, family and associations. “We have had a very busy time in terms of tenders and new mandates,” she added.
External delegation agreements differ in the level of oversight delegated, while the amount of flexibility has increased dramatically over time.
Some clients want a foreign investment manager to handle everything, asset allocation, selection of individual funds and managers, and all the risk management and support functions. Others want to retain a veto over key decisions, or to outsource only funds earmarked for a certain type of asset, as is the case with the AIG BlackRock transaction, which includes fixed income and private assets.
In order to secure Centrica’s mandate, as well as a fund management partnership on a new platform with the insurance market, Lloyd’s of London, “Schroders has long worked with these two organizations and has shown that we have a common culture and shared beliefs,” says James Barham, CEO of Centrica. Schroders Solutions, which has 234.5 billion pounds of assets under foreign investment provision transactions. “The Trustees second not only a highly recognized and respected team of people, but the assets of three programs, and all of their staff. This is not a decision to be taken lightly,” Parham added.
BlackRock had outsourcing transactions at the end of last year with more than 120 institutional clients managing more than $ 200 billion. The world’s largest asset manager also provides similar “full portfolio” services to wealth management clients covering another $ 230 billion in assets. The company said last year that business for this portfolio grew by 16 percent, compared to an average of 7 percent for the industry.
In terms of full service, BlackRock offers a wide range of first-time assistance and advice options, including helping senior executives report to trustees’ advice on key issues and responding to questions.
The transactions of the TIIs started among relatively young clients – usually pension programs from $ 100 million to $ 1 billion, if not less – who sought to cut costs and benefit from economies of scale and technology investments.
But much larger programs have shown interest over the past few years. So you need to have retirement plans that are mature and closed to new money and you do not want to hire people within the company to run them.
Interest in overseas investment managers shifted from European defined benefit schemes, which were early adopters, to the United States and eventually Asia. Endowment funds, insurance companies and family offices also enjoy these services.
Increased regulatory scrutiny and compliance, and investment based on environmental, social and governance standards, which have dominated over the past few years, have led to greater demand.
“Sustainable investment is a major driver, especially in the UK and Europe, due to reporting requirements,” said Greg Calnon, global head of multibate solutions at Goldman Sachs, which manages the $ 220 billion CIO business. “Non-profit organizations and donations are particularly focused on this issue in the United States,” he added.
But despite its widespread popularity, there is less evidence to show how external investment mandates perform compared to in-company investment.
The fees charged by external investment managers are very detailed and rarely announced, and are on top of the fees paid to primary investment managers.
This means that a potential conflict of interest may arise between the investor and the outside manager over the investment allocation.
“You need to have a management structure in place to make sure the investments that are made internally are made for the right reasons,” says Rikav Shah, a director at EY Consulting.
Critics question the ability to make money from delegating an external IT chief unless the fund manager deliberately questions investment in the delegated investment manager’s funds.
“We looked at it and could not make it work,” says the CEO of a very large asset management fund. “My opinion is that there is a direct conflict of interest. The company will say I will charge you almost zero for the investment authorization service, but by the way 50 percent of the money goes to my fund.” .
“It’s hard to outsource well if you’ve property rights, because your preference will always be for your own money, and customers will have problems with that,” said Seth Bernstein, CEO of Alliance Bernstein, which manages $ 779 billion.

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