The Ministry of Home Affairs in Singapore aims to appoint one. At least one Hong Kong conglomerate already has. And investment consultants claim other smaller asset owners are also pondering the prospect.
Years after they broke ground in Europe and the US, outsourced chief investment officers (OCIOs) are heading to Asia.
In essence, OCIOs are adopted by companies or organisations that want some or all of their assets to be fully managed and invested by another company.
The exact breadth of service depends on the contract but can include investments across multiple asset types as well as asset settlement and custody. The asset owner discusses its investment time horizon and risk appetite with would-be suppliers, along with how extensive it wants the level of service to be.
OCIOs are also sometimes called delegated investment services or solutions. Broadly speaking, there are two types.
“There is either one for a full portfolio [of assets] 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 proponent of the idea to several interested asset owners during his former life as a consultant at Willis Towers Watson, told AsianInvestor.
To date, just a few regional asset owners have decided to pull the trigger on the idea. Singapore’s Ministry of Home Affairs was looking at the concept in late 2018, as AsianInvestor revealed in December. And Hong Kong’s Jardine Matheson is understood to have employed Willis Towers Watson as an OCIO for its corporate pension fund.
More could follow. The OCIO structure is drawing interest from asset owners in Korea, China and Singapore, according to investment consultants and accounting firm executives. There are many more potential candidates from these and other countries.
Most Asian nations have some smaller institutional investors that lack dedicated internal investing resources. For them, the structure may well make sense.
OCIOs are a new concept in Asia – “it’s barely begun here,” one consultant told AsianInvestor. That differs from the US and Europe, where some companies have long employed OCIO operators to handle their pension assets.
The Thinking Ahead Institute, a unit of Willis Towers Watson, published a survey in November on the 100 largest asset owners in the world. It noted that OCIOs and master trusts represented 7.2% of the combined assets of these investors.
Investment consultants are keen to push the concept in Asia too, for their own reasons. 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 look to employ the consultants only on an ad hoc basis for specific mandate plans.
OCIO contracts, on the other hand, ensure a steady and fixed annual fee, typically over many years. A senior executive at an investment consultant told AsianInvestor that his organisation has spoken to multiple Asian organisations about the idea.
While investment consultants like Mercer, Willis Towers Watson, Russell Investments and AON Hewitt are major OCIO operators, large asset managers such as BlackRock and SSGA also perform the role in the US. A spokeswoman for BlackRock declined to comment on the potential of OCIOs in Asia, while SSGA did not respond to requests for comment.
There are good reasons for organisations to explore the concept. Most corporates and smaller investors end up combining members of their treasury and human resources departments to oversee their pension plans or endowments. They are typically not investment experts and as a result, they often have basic investment plans, which may not correlate to their investment goals. “Some plans are just equities and bonds, whereas an OCIO framework can bring you to other asset classes,” said the finance official.
Hiring professional managers to take over instead can help the asset owners expand their investment options, and use the larger size of their new OCIO manager to access a broader array of investments, like alternatives.
Plus they typically enjoy economies of scale in the form of lower fee charges versus what they would pay to access funds alone; often paying an OCIO manager is cheaper than investing internally costs vary depending on the mandate, but typically it’s less than 1% of assets under management (AUM) per annum.
“There’s nothing unique about what OCIOs can offer in Asia versus other regions,” noted a finance official at one Asia-headquartered corporate who has studied the structures. “However, Asia doesn’t have the same breadth or depth of pension plans that exist in other parts of the world, and many are state-linked, which means the governance around them is naturally more conservative.”
“It can be beneficial for an asset owner to do away with lots of separate investment managers, and not to have to try and resource an investment operation or dealing with custodians,” added Adeline Tan, wealth business leader for Hong Kong at Mercer.
This story was adapted from a feature that initially appeared in the December 2018/January 2019 edition of AsianInvestor magazine.