The OCIO industry is poised for significant growth, driven by endowments and foundations.
Projections indicate that assets under management (AUM) could reach $4.2 trillion by 2028. This growth is largely attributed to the increasing complexity of nonprofit investment portfolios, which are allocating more resources to alternative investments such as private equity and hedge funds.
Many nonprofits lack the internal expertise and staffing necessary to navigate these intricate investment landscapes effectively. As a result, outsourcing investment management to OCIO providers has become more cost-effective, especially in an environment where compensation for Chief Investment Officers (CIOs) has escalated significantly.
The healthcare sector is expected to play a pivotal role in the growth of large OCIOs. However, for healthcare systems to capitalize on this opportunity, they must find providers equipped with the necessary technical expertise. The demand for specialized OCIO services in the healthcare sector underscores the broader trend of consolidation within the industry.
Notable mergers, such as Mercer acquiring Vanguard's OCIO business and wealth managers like Hightower investing in large institutional players like NEPC, are indicative of a market that is rapidly evolving.
Another factor contributing to the growth of the OCIO industry is the decline in advisory fees, making outsourcing a more attractive option for nonprofits. This trend is further reinforced by a collective mindset among nonprofits, where the notion of "safety in numbers" prevails.
As the landscape becomes more competitive and complex, the willingness to embrace OCIO services is likely to grow, positioning the industry for sustained expansion in the coming years.