Investment outsourcing

Investment outsourcing is the process whereby institutional investors and high-net-worth families engage a third party to manage all or a portion of their investment portfolio. This arrangement can include functions such as establishing the asset allocation, selecting investment managers, implementing portfolio decisions (both strategic and tactical), providing on-going oversight, performing risk management and other areas of portfolio management. Investment outsourcing goes by many names including fiduciary management, outsourced chief investment officer (OCIO), CIO in a box, and implemented consulting.

Outsourced investment management is a large and growing market segment with over a trillion dollars currently managed by outsourced managers. According to a survey of outsourcers by aiCIO magazine, the volume of outsourced assets increased 200% between 2007 and 2011.

The outsourcing trend began with smaller institutions that could not or did not want to build an internal investment team. According to a study by the Family Wealth Alliance, approximately four in ten wealthy families have outsourced discretionary investment authority. The trend is even clearer among families with less than $500 million in assets where two-thirds have outsourced management. Similarly, just 11% of college endowments between $100 and $500 million internally manage their portfolios and instead rely on outsourced managers. Increasingly, however, it is not just small investors seeking to outsource. There has been a marked increase in the number of multibillion outsourcing engagements since the 2008 financial crisis as firms grapple with increasing complexity and the need for better risk management.