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BNY: Institutional Investors turn to OCIOs

Thursday, June 07, 2018
Opalesque Industry Update - BNY Mellon, a global leader in investment management and investment services, today announced a new research study, conducted in association with Greenwich Associates, that found institutional investors are depending more on outsourced Chief Investment Officers (OCIOs) to manage the increasing complexity of their portfolios and gain access to new asset classes. Additionally, a growing number of large and small institutions report they are finding it more challenging to maintain the talent, technology and resources to optimize their investment process and returns, and are therefore turning to OCIOs to help them achieve strong investment returns.

The research study of 33 OCIO providers conducted during Q1 2018, found that funds invested through OCIOs are predominately focused on endowments and foundations at (33%), followed by defined benefit pensions at (30%). Over the next five years, OCIO providers anticipate that demand for their services will be strongest among endowments and foundations, and that mid-size institutions with $250 million to $500 million in assets under management (AUM) will be the biggest source of growth. Additionally, almost one in five respondents predict institutions with more than $1 billion in AUM to be the largest source of new assets over the same period.

"The OCIO industry has, in a short time, experienced explosive growth and is creating several opportunities, but also challenges for OCIO providers," said Elizabeth Baulch, Managing Director, BNY Mellon Asset Servicing. "While assets invested through OCIOS have grown exponentially over the last several years, OCIO providers are facing fierce competition and are exploring better ways to demonstrate their value more clearly and differentiate their platforms. To help them succeed, more than half of the OCIO providers from our survey employ more than five external service providers to help fulfill client mandates, and a third of firms use more than ten."

Further, the study revealed the integration and management of multiple service providers was considered their most important and difficult task. Additionally, their top five operational challenges included administrative issues, reporting, data management, fees, and technology. External service providers, such as custodians, can help anticipate the unique challenges of OCIO providers and tailor their solutions, particularly in areas of data aggregation, reporting and risk management. Additionally, 13 of the 33 OCIO providers surveyed proactively highlight their relationships with support service providers to enhance credibility and build trust with clients.

"To help alleviate the burden of using multiple service providers, BNY Mellon offers a comprehensive suite of end-to-end OCIO services that simplify the day-to-day operations of servicing clients' needs, and so they can focus more on driving strong investment returns," continued Baulch. "As a pioneer in the space, we have been servicing the OCIO market for more than 30 years, and have a proven track record of helping OCIOs to accelerate growth, streamline operations, and put their resources to better use. Additionally, due to our size and scope, we are able to bring together capabilities from our Asset Servicing and Markets businesses to offer OCIO clients unique efficiencies they can't find elsewhere."

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