Growth in the outsourced chief investment officer (OCIO) industry is expected to continue through 2029 after more than tripling in size in under a decade, from just over $1 trillion in assets in 2015 to more than $3.3 trillion by the end of 2024, according to a Cerulli report, released Thursday.
OCIO assets are expected to increase to $5.6 trillion, reflecting a 10.6% average annual growth rate, according to “The Cerulli Report—U.S. Outsourced Chief Investment Officer Function 2025.”
The swift growth has made the OCIO sector appealing for many new entrants, including asset managers, banks, investment consultants and wealth managers, Cerulli said.
The growth is based on three “fundamental factors,” Cerulli said, pointing to investment performance, flows at the channel level (contributions and distributions from the plan or portfolio) and OCIO adoption.
OCIO adoption has been the largest driver of growth for the industry and is expected to remain consistent.
Historically, OCIO adoption has been the largest driver of growth for the industry and is expected to remain consistent, with almost $1.3 trillion in projected flows to the OCIO sector in “the next five years from institutions adopting the model for the first time or clients in sleeve portfolios expanding their relationships,” Cerulli said.
Corporate defined contribution (DC) plans are expected to lead institutional channels in OCIO flows over that period, at $294 billion, and corporate pension plans are expected to produce $248 billion in flows, according to the research firm.
According to the report, OCIO providers say that most new clients come from a previous OCIO relationship.
“Growth is being driven by strong adoption across institutional channels.” — Chris Swansey, Associate Director, Institutional, Cerulli
“We conducted a couple of new analyses for this years report that stood out,” Chris Swansey, Associate Director, Institutional at Cerulli, told WSR by email on Friday.
The first was that “growth is being driven by strong adoption across institutional channels,” he said.
The almost $1.3 trillion in new assets that are expected to enter the sector over the next five years “represents substantial organic growth opportunities, particularly for larger OCIO providers as large institutions from the corporate defined benefit and contribution plan channel are expected to account for nearly half of these new assets,” according to Swansey.
“Additionally, we wanted to take a look at how acquisition activity could impact the industry going forward as we’ve seen an acceleration in the acquisitions from competitors” and from large RIAs including New York-based Cerity Partners acquiring Denver-based Agility, announced last year, Swansey told WSR.
Swansey explained, “We used a number of indicators to examine whether an OCIO provider could be a potential acquisition target. These indicators included the OCIO provider having consolidated ownership, PE ownership, a wealth management background, or if it had been previously required. 81 OCIO providers met this criteria and accounted for $946 billion in US OCIO assets.”
In the news release, he said, “The industry is in different stages of its lifecycle, depending on the client channel. The portion of the industry focused on serving corporate DB plans is further along in the industry lifecycle than the portion focused on endowments, foundations, and the private wealth segment. Fees are more standardized, assets are more consolidated, and the remaining addressable market is shrinking more rapidly.”
He went on to project, “Looking ahead, competitive dynamics are anticipated to change. Larger OCIO providers will likely increase fee pressure on smaller competitors as assets concentrate among the largest providers. If organic growth opportunities eventually decline, large OCIO firms are expected to seek inorganic growth through acquisitions. These developments are poised to reshape the industry’s evolving landscape.”
As the OCIO segment continues maturing, large firms will probably concentrate on the “rapidly growing nonprofit and private wealth segments, which will, in turn, accelerate the industry’s maturity in that segment,” according to Cerulli.
The “implications” of that include consolidation, fee compression and more standardization among providers, Cerulli predicted.
Jeff Berman, Contributing Editor and Reporter at Wealth Solutions Report, can be reached at jeff.berman@wealthsolutionsreport.com.
