Singapore’s Ministry of Home Affairs is looking to launch a request for proposal (RFP) for outsourced chief investment officer (OCIO) services to fully manage and invest up to $700 million of its pension assets, AsianInvestor can reveal. 

And the budding OCIO RFP could be followed by more in Asia.

Four executives at investment consultant and accounting firms have independently also told AsianInvestor that multiple other organisations in Singapore, Korea and China are discussing employing OCIOs as well.

OCIOs are a relatively new concept in Asia. In essence, companies or organisations that introduce them arrange for some or all of their investment assets to be fully managed and invested by another company. The exact breadth of these services depends on the contract but can include investments across multiple asset types as well as asset settlement and custody.

“There are two types of OCIO, either one for a full portfolio or one where you sleeve a set of assets to be managed by an outside party,” Peter Ryan-Kane, founder of PeRK Advisors and a former consultant at Willis Towers Watson, told AsianInvestor.

Executives familiar with the Ministry of Home Affairs’s plans said the expected RFP is likely to be for the majority of its total assets under management (AUM), potentially only excluding its Singapore dollar bond investments. One executive close to discussions said the total OCIO size was for about $700 million.

The ministry oversees national security, public safety and immigration, and thus receives and holds pension payments on behalf of thousands of personnel including soldiers, police and firemen.

Although the precise timing is unclear, the RFP is expected in the near future because it is understood that the ministry has already been in discussions for about two years about a potential OCIO solution to its pension allocations.

A spokesman for the ministry requested emailed questions on the pending RFP and did not immediately respond after they were sent. 

One source close to its original plans told AsianInvestor that the ministry initially launched a request for information – a broader, less focused request – of multiple investment service companies in 2017. Willis Towers Watson and Mercer were included in this RFI, and are believed to be potential participants in the RFP to come.

The ministry is then understood to have employed a US firm to conduct due diligence on the RFIs it received, before proceeding to look to issue an RFP. AsianInvestor could not ascertain the identity of this company, but Will Rainey, Willis Towers Watson's head of investment strategy for Asia, told the audience at AsianInvestor’s Southeast Asia Institutional Investment Forum on Thursday that a top-four US accountancy firm is typically employed to conduct such work.

Rainey also declined to comment on his organisation’s potential involvement in an RFP from the ministry, as did Garry Hawker, the Singapore-based director of strategic research for growth markets at Mercer.

OCIO INTEREST

The concept of OCIOs is one that investment consultants are keen to push in Asia. They have struggled to make money in the region through typical investment advisory work because Asian asset owners are often reluctant to pay for external asset allocation advice or they only look to employ the consultants on an ad hoc basis for specific mandate plans.

OCIO contracts, on the other hand, ensure a steady and fixed annual fee, typically over multiple years. A senior executive at an investment consultant told AsianInvestor that his organisation has spoken to multiple Asian organisations about the idea.

“Typically OCIO structures work with smaller statutory boards or endowments or corporate pension funds because they lack the size to hire dedicated personnel and, as a result, their investment management is pretty basic,” he said. “If you bring in a big company like us as an OCIO you can take advantage of our ability to manage large pools of money and get lower entry rates into areas like alternative assets that you would struggle to get access to as an individual organisation.”

He estimated that asset owners with less than $1 billion to $5 billion would be prime candidates for OCIOs, while those with over $20 billion in AUM would generally be large enough to enjoy their own dedicated investment teams.

Another consultant told AsianInvestor that the annual fee rate for an OCIO depends upon the level of service required, but that it should come in below 1% of AUM a year.

Top global OCIOs and Master Trusts

Large corporations in other countries have employed OCIO operators to handle their pension assets, which has led them to gain more AUM. The Thinking Ahead Institute, a unit of Willis Towers Watson, published a survey on the 100 largest asset owners in the world, noting that OCIOs and master trusts represented 7.2% of the combined assets of these investors, with the average assets of OCIOs and master trusts standing at $104 billion.

In addition to investment consultants like Mercer, Willis Towers Watson, Russell Investments and AON Hewitt acting as OCIOs, large asset managers such as BlackRock and SSGA are also doing so in the US and Europe.

A spokeswoman for BlackRock declined to comment on the potential of OCIOs in Asia, while SSGA did not respond to requests for comment.