Dozens of asset managers and consulting firms are courting institutional investors with solutions-based approaches, yet relatively few are successfully achieving meaningful recognition for their liability-driven investing (LDI) or outsourced chief investment officer (OCIO) capabilities, according to Market Strategies International’s latest addition to the Cogent Report series.
In its new U.S. Institutional Investor Brandscape report, the business research and strategy firm suggests one-third (34%) of institutional investors are “unable to name an LDI provider they would seriously consider using,” while 59% cannot name a single OCIO provider.
Linda York, senior vice president at Market Strategies and author of the report, makes the case that this understanding barrier is clearly holding back the LDI and OCIO concepts from taking deeper root—in the defined contribution plan market especially. LDI is already “a clear favorite among corporate pensions managing to a very specific and defined liability stream,” she notes, “and many in the industry are forecasting continued interest in OCIO or fiduciary management services.”
That said, there is some serious educational work left to do among many institutional investors to ensure lasting growing in LDI or OCIO business lines, whether serving DC plans, endowments, foundations or other large-scale asset owners.
“When we prompted institutional investors with a list of 30 LDI providers, 21% of respondents who said they were interested in or currently employing LDI did not recognize any of the firms as offering LDI services,” York explains. “Moreover, when prompted with a list of 39 OCIO providers, 11% of those interested in or currently employing OCIO services did not recognize any of the firms as providers of OCIO services.”
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York explains that, “while many firms are adding to staff and building expertise in these solutions-focused areas, few firms have yet to establish themselves as serious contenders/leaders for these services.” She believes the he next step for these firms “needs to be a concerted marketing and communication effort to boost awareness and attract new business.”
The study goes on to identify the firms that achieve the strongest recognition for their LDI and OCIO services, “many of which are already atop the leaderboard for their asset management capabilities and are leveraging these solutions-based offerings to deepen their reach with existing clients beyond the fulfillment of a particular investment mandate.”
Stacked up against names such as BlackRock, J.P. Morgan Asset Management, Wells Fargo, Vanguard, Goldman Sachs Asset Management, PIMCO and other familiar faces, York concludes that providers “seeking to break in to this lucrative yet increasingly competitive market face an uphill battle.” Still, given the relative lack of understanding of these emerging market segments among institutional investors, this may give smaller or independent firms the opportunity to differentiate themselves, “especially by touting their unique approaches to investment outsourcing and the associated benefits that clients can expect to reap.”
A summary of findings and more information on obtaining the full report is here.