More institutional investors are looking to access outsourced chief investment officer (OCIO) investment solutions as they continue to grapple with market volatility and trying to achieve investment goals in a prolonged low real interest environment.
This has proven a boon to Mercer, which bills itself as “a global leader in redefining the world of work, reshaping retirement and investment outcomes, and unlocking real health and well-being.” The company today announced its global assets under management (AUM) reached $380 billion USD as of March 31, 2021.
Originally developed to support the asset management needs of defined benefit pension funds, Mercer’s Investment Solutions and OCIO services have gained traction among other asset owners including defined contribution, endowments, foundations, insurers, wealth managers, and not-for-profit healthcare organizations.
The company said it has diversified its client base, with 2020 proving a notable shift, where almost 50% of growth from Q1 2020 through Q1 2021 came from non-defined benefit pension assets. From Jan 2016 to Apr 2021, defined contribution and other types of non-pension assets increased 245%, as other kinds of asset owners began to seek out sophisticated, responsive and cost-efficient investment strategies.
Between December 31, 2019, and December 31, 2020, Mercer added more than 100 new clients.
“Portfolio management oversight, complexity and cost continue to challenge asset owners, who also seek to capture market opportunities and strategically position their portfolios for longer-term prospects in private markets. We are also seeing that ESG and sustainability are driving many institutional investors to adopt new governance models,” said Mick Dempsey, Global Head of Investment Solutions and OCIO Services at Mercer.
“The combination of these factors, which impacts different investors in their own specific ways, is creating a rapidly growing interest in the OCIO market,” Dempsey added.
Continued litigation coupled with recent legislation expanding the set of available solutions within the Defined Contribution marketplace has contributed to the growth of the US DC OCIO business. Plan sponsors are looking for stronger governance, efficient execution and professional management of investments to better assist plan participants in meeting their retirement objectives.
“We have seen a continued trend of outsourcing the investment management of DC plans from corporate plan sponsors across the size spectrum from mid-market to mega sized plans, in an effort to minimize risk and improve investment outcomes,” said Liana Magner, Mercer’s US Defined Contribution Leader. “We believe the discussions around PEPs and full fiduciary delegation will continue this trend in the future.”
Rich Nuzum, President, Investments & Retirement at Mercer, said increased interest in gaining assistance with the implementation of investment programs across many client types and among large, sophisticated asset owners is spurring growth.
“Governance has always been a focus for investors and investment committees. In response to last year’s market volatility, there is a growing emphasis on increasing agility and the ability to dynamically assess opportunities with an eye toward capturing returns and diversification opportunities more opportunistically,” Nuzum said. “There is a strategic change in our industry underway, driven by reviews of how existing governance arrangements performed during the pandemic.”
Similar to the period immediately following the 2008-2009 financial crisis, Nuzum said more investors believe they need to strengthen their investment governance and implementation capabilities as they allocate capital for the long term.
SEE ALSO:
- Mercer Partners with Empower for Outsourced 401k Solution, PEP Expansion
- 401k Litigation Spike Spurs Trend in Fiduciary Outsourcing
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
