To enhance performance, portfolio management and reporting as well as to automate many functions of managing outsourced investment strategies, BlackRock and other large OCIO managers are investing heavily in technology to increase their capacity to meet the coming surge in demand.
“Technology is critical to the growth of OCIO firms and is a way for managers to differentiate themselves. The big firms, those that will be able to afford the technology spend, will prevail,” said Andrew H. McCollum, managing director of investment management at investment industry researcher Greenwich Associates LLC, Stamford, Conn.
BlackRock Inc., for example, will utilize Aladdin, the firm’s internal risk management and reporting system, to help the firm develop customized OCIO strategies on a large scale, said Ryan Marshall, managing director and global head of client portfolio solutions at New York-based BlackRock.
“We see ‘mass customization’ as the next wave of outsourcing, the ability to deliver portfolios for multitudes of clients, built to meet those clients’ unique objectives and constraints, and implemented as a cost-efficient solution,” he said, adding “this evolution in asset management is only possible through technology; i.e., technology platforms which not only enable managers to generate insights to create alpha, but also to manage large numbers of customizable portfolios with a ‘whole portfolio’ view combined with transparent reporting, delivered at scale,” Mr. Marshall said.
BlackRock ranked fifth on Pensions & Investments’ list of OCIO managers with worldwide assets under management with full/partial discretion for institutional clients as of March 31 at $139.6 billion, up 9.7% from the previous year.
Richard Joseph, Boston-based U.S. distribution leader for Mercer LLC’s wealth management business, agreed and predicted an industrywide move to mass customization over the next 12 to 18 months.
“We’re living in a very customized world,” he said, noting that people are beginning to expect a level of customization in many areas of their lives.
“We’re going to see managers that have the right technology provide mass customized advice and management for target-date funds and other OCIO strategies,” Mr. Joseph said.
Mercer has been building out its technology platform to create upgraded data and trading systems; more specific, granular reporting for investment clients; and more analytical capabilities for the firm’s portfolio managers in the OCIO business and for traditional consulting.
Mercer retained the top spot in P&I’s ranking of OCIO managers by worldwide assets managed with full or partial discretion in the year ended March 31 with $260.5 billion, up 13.3% over the prior year.
Regardless of the level of automation that technology brings to managing outsourced portfolios, the human element will always be essential to engage clients in meaningful ways, said Bryan R. Ward, senior partner, Aon Investments USA Inc., Chicago.
“Investment in technology is critical so we can manage growth. We rely on automation to improve monitoring of client portfolios, in portfolio construction and management, trading, reporting and leveraging our back-office structure. But the human interface is very important to the outsourcing process. People will not be going away,” Mr. Ward said.
He added that “the OCIO business of is one of scale with high reliance on technology. Without both of these factors, it will be hard for smaller managers to grow.”
Aon was the second-largest manager of worldwide assets managed with full/partial discretion with assets of $172.2 billion, a 2.7% increase over the previous year.
Greenwich Associates’ Mr. McCollum predicted that appropriate, effective technology will be a means of survival for OCIO managers as the industry matures.
“The OCIO business still is in a growth stage,” said Andrew H. McCollum, noting that by way of example that the traditional investment consulting industry is mature and AUM now is primarily concentrated with the largest consulting firms.
“As the OCIO industry moves into maturity, it’s inevitable that the business will be dominated by large players or smaller OCIO companies that can retool their businesses to remain viable,” he said.