External money managers now running $2.5tn of assets worldwide

The industry for outsourcing investment mandates is booming, offering large prizes for asset managers as challenging markets, a deluge of compliance and governance requirements and rising costs push big asset owners to seek their help.

The industry has more than doubled in size since 2016, growing to $2.46tn in assets under management worldwide.

The pace looks unlikely to let up with a flurry of recent chunky deals. In March BlackRock was appointed by insurer AIG to manage up to $150bn in fixed income and private assets. Last year, British Airways transferred £21.5bn in its two main pension schemes to the US manager. In April UK fund house Schroders announced a new £10bn mandate managing energy provider Centrica’s pension schemes.

New research from Chestnut Advisory Group estimates the industry will grow to more than $4tn in assets by 2026, as more flexible mandates open the industry to a wider range of clients than the smaller pension schemes who initially sought out external help managing their investments.

While the US has led the way in what are dubbed outsourced chief investment officer (OCIO) deals, accounting for more than two-thirds of assets, growth in Europe has also been notable.

“More than half of our growth over the past three years in Europe has been in the non-pension segments — so insurance, endowments, family offices, foundations,” said Jo Holden, global head of investment research at Mercer, one of the largest OCIO providers globally with $388bn in assets under delegated management. “We’ve had a phenomenally busy time in terms of tenders and new mandates coming in,” she added.

Outsourcing agreements vary in the level of control that is delegated and the amount of flexibility has increased significantly over time.

Some clients want the external investment manager to handle everything: asset allocation, selection of individual funds and managers and finally all risk management and back-office functions. Others want to maintain a veto over key decisions, or…

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