Acquisition activity in the outsourced chief investment officer (OCIO) industry is being driven by large-scale OCIO providers and, more recently, wealth managers, according to The Cerulli Report—U.S. Outsourced Chief Investment Officer Function 2024.
Large OCIO providers have been using their resources to “gain scale through the acquisitions of competitor providers or other firms that enhance their investment platform,” Cerulli says. “Acquiring small and mid-sized competitors have helped large OCIO providers gain footholds in client channels where they had not previously gained market share.”
The OCIO industry is now “poised to enter the next phase of the consolidation lifecycle, entailing high levels of acquisition activity. The concentration of assets among the largest providers is expected to increase as industry-wide and idiosyncratic factors drive further consolidation,” Cerulli predicts.
U.S. assets managed by OCIO providers hit $2.9 trillion by the end of last year and, Cerulli projects, will reach $4.2 trillion by the end of 2028.
Large-scale OCIO providers, which Cerulli defines as those firms above the 90th percentile in assets under management (AUM), now account for 61% of OCIO assets worldwide. That is up from 49% in 2017, due in part to competitor consolidation, Cerulli says.
At the same time, wealth managers, especially RIAs, are also looking to improve their institutional offerings by acquiring OCIO providers, Cerulli says.
“To gain scale among institutional investors, an OCIO provider needs sophisticated investment capabilities, expertise working with large client portfolios, and a well-established investment team,” says Chris Swansey, Associate Director at Cerulli.
“Acquiring a well-established institutional OCIO provider may help RIAs expand into the channel and gain access to better alternative asset capabilities for their private wealth clients,” according to Swansey.
The increasing costs of compensation, technology and regulatory requirements are pressuring OCIO providers, Cerulli says, while also noting the increased turnover of senior investment employees due to acquisitions.
Therefore, “while large-scale providers have shown an increased appetite for acquiring smaller providers, smaller providers have also shown an interest in selling all or a portion of their businesses,” according to Cerulli.
“Acquisitions from outside entities such as RIAs and private equity firms could lend resources to these providers that enable them to build new market advantages.”
– Chris Swansey, Associate Director, Cerulli
“Acquisitions from outside entities such as RIAs and private equity firms could lend resources to these providers that enable them to build new market advantages,” adds Swansey.
“The resulting changes could create a bifurcated industry with a few large-scale providers managing a heavy concentration of assets and many small providers fulfilling a specific niche without much opportunity for middle-market providers,” according to Cerulli.
“As large providers gain scale and smaller providers entrench themselves within niche markets, middle-market providers will need to differentiate their value,” Swansey warns.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jberman@wealthsolutionsreport.com.
