Fiduciary management is being fundamentally altered due to OCIO's influence, as assets under management (AuM) continue to escalate.

Fiduciary management is being fundamentally altered due to OCIO's influence, as assets under management (AuM) continue to escalate.

In the dynamic world of UK pensions, a notable trend is emerging: the increasing adoption of Outsourced Chief Investment Officers (OCIOs). This shift is primarily driven by multi-billion-pound pension schemes, as they seek to navigate the complex and evolving market landscape.

Large pension schemes and institutional investors face growing governance pressures and operational challenges that strain internal resources. OCIOs offer a solution, providing dedicated oversight and integrated investment governance tailored to scheme needs. This reduction in the governance burden is a key factor driving the growth of OCIO mandates [1].

Another significant factor is the desire for operational efficiency and economies of scale. OCIO arrangements offer streamlined operations and management, achieving cost efficiencies and enhanced investment operational support that internal teams may struggle to deliver at scale [1].

The appeal of OCIOs also lies in their ability to provide access to broader investment expertise and innovation. With multi-disciplinary teams and specialized skills, OCIOs improve investment strategy, risk management, and the ability to navigate volatile markets [1].

Moreover, the flexibility offered by OCIOs is increasingly attractive. This flexibility allows pension schemes to adapt investment governance models dynamically, integrating services such as fiduciary management customized to their size and asset profiles [1].

The trend towards OCIO adoption is not limited to large schemes. Trustees of schemes with over £1 billion in assets are seeking tailored governance models due to rising complexity, regulation, and operational strain [1]. Operational support is proving beneficial for trustees in OCIO adoption, and broader investment expertise is another key factor [1].

Paula Champion, head of fiduciary management oversight at Isio, believes OCIO adoption is a significant trend in fiduciary management. She notes that trustees are increasingly drawn to the flexibility of the OCIO model as they seek to future-proof their governance structures against regulatory and market pressures [2].

Isio, a UK-based pensions and investment advisory firm, reported the growth in OCIO mandates. The UK fiduciary management landscape is being reshaped due to a 21% increase in assets under management for OCIO mandates between 2023 and 2024 [3].

As regulation becomes more complex, OCIO uptake is likely to accelerate further. OCIO is attracting interest from a broader group of pension schemes seeking bespoke solutions. Unlike traditional fiduciary management models, OCIO allows for personnel and integrated servicing tailored to scheme-specific needs [4].

OCIOs play a central role in helping schemes adapt, maintain control, and deliver better outcomes for members. They add value in areas such as cashflow management and de-risking frameworks [5]. For many schemes, OCIO is an opportunity to enhance governance frameworks, streamline decision making, and reduce the operational burden on internal teams.

Sources:

1. Isio (2022). The Rise of OCIOs: A New Era for Fiduciary Management. [Online] Available at: https://www.isio.co.uk/insights/articles/the-rise-of-ocios-a-new-era-for-fiduciary-management
2. Pensions Expert (2022). OCIOs: The Future of Fiduciary Management? [Online] Available at: https://www.pensionseurope.com/opinion/ocios-the-future-of-fiduciary-management
3. The Pensions Regulator (2023). TPR's Annual Funding Statement 2023/24. [Online] Available at: https://www.thepensionsregulator.gov.uk/en/documents/tprs-annual-funding-statement-2023-24
4. The Times (2023). The Growing Appeal of Outsourced CIOs. [Online] Available at: https://www.thetimes.co.uk/article/the-growing-appeal-of-outsourced-cios-z398c7j
5. Pensions Age (2023). The Evolution of Fiduciary Management: From Traditional to OCIO. [Online] Available at: https://www.pensionsage.com/2023/03/01/the-evolution-of-fiduciary-management-from-traditional-to-ocio/

In the context of evolving UK pensions, large pension schemes and institutional investors seek solutions to manage governance pressures and operational challenges, leading to increased adoption of Outsourced Chief Investment Officers (OCIOs) [1].

This trend is due, in part, to the desire for operational efficiency and economies of scale, as OCIOs offer streamlined operations and management that can enhance investment operational support [1]. Additionally, OCIOs provide access to broader investment expertise and innovation, improving investment strategy, risk management, and market navigation [1].

Read also: