A Look Back at 2024
1. Growing Demand for Customization:
In 2024, there was a noticeable increase in the demand for customization within Outsourced Chief Investment Officer (OCIO) services. Companies were on the lookout for solutions that were specifically tailored to their unique objectives, risk tolerances, and values. OCIO providers took on the responsibility of incorporating ESG (Environmental, Social, and Governance) factors and creating personalized portfolios, moving away from generic approaches.
2. Moving forward, there's an increased focus on Private equity markets:
Such measures included seeking higher returns and diversification from private equity, private credit, and real assets. OCIO providers had to find ways to invest in illiquid asset classes while delivering integrity and effective risk management.
3. Regulatory and Compliance Care Pressures:
Changes in the regulatory framework meant that OCIO companies had to implement additional compliance measures and tighten existing ones. An example is the new rule on advertising by investment advisers released by the SEC in November 2024 which required firms to revise the way they market their services by adding new obligations for disclosures and prohibitions for misleading statements. The DOL also issued recommendations on some aspects of ERISA fiduciary responsibilities that considered ESG issues in investment decisions. Such trends forced OCIO service providers to introduce more stringent policies in respect to risk management and compliance in order to safeguard the clients’ interests and provide accurate and reasonable information to the clients.
4. Consolidation and Competition:
The OCIO space experienced notable consolidation as larger firms acquired smaller players to expand their capabilities and scale. At the same time, competition intensified, driven by new entrants and heightened client expectations.
What to Look Forward to in 2025
1. Enhanced Data Integration and Utilization:
The role of data will continue to expand in 2025. Advanced data aggregation and normalization solutions will enable OCIO providers to deliver deeper insights, improve operational efficiency, and foster greater transparency. Seamless integration with clients' internal systems and third-party platforms will be key to success.
2. ESC Evolution and Impact Metrix:
As indicated by the Preqin 2024 Private Markets Report, it is anticipated that the private equity and real assets sector will increase by 10 to 15% by the year 2025, with the overall forecasts indicating a deeper venture into the private market sector. According to the experts, the growth of the private market in this segment has been propelled by the development of secondary market solutions and liquicdity management.
Market trends show that private asset investments are expected to continue to increase especially given that OCIOs are devising new ways to meet the liquidity and valuation hurdles. Increased use of technology will help firms provide more accurate reporting and real-time insights into this investments.
2. ESC Evolution and Impact Metrix:
On the other hand, while the emphasis on the integration of ESG metrics was retained in 2024, there are indicators that in 2025 there will be more focus on the impact metrics and reporting frameworks. For example, it can be anticipated that the GRI and SASB frameworks will be used more widely than before.
Apart from that, there will be a growth in popularity for metrics including carbon footprint indicators, diversity and inclusion indices, and community relations impact scores as clients of the company look for more detailed information about how their investments are made to create positive value to the society wind industries. While it is clear which information will be required, it is unclear how much effort it will take to do so.
4. Client Centric Innovation:
As more economic institutions expect more benefit from the use of OCIO relationships, the primary focus that firms will have will be on innovations that provide value to the client. Communication tools for example are expected to improve as more advanced tools supporting personalized strategies and a wider range of service models become increasing available.
5. Increased Focused on Mid-sized Institutions:
Mid-sized institutions, such as endowments, foundations, and healthcare systems, will become a critical growth area for OCIOs. These organizations often require the sophisticated capabilities of large providers but still seek a high-touch, personalized approach.
Conclusion:
The OCIO industry is poised for another year of evolution in 2025. Firms that prioritize technological innovation, deeper client engagement, and expertise in alternative investments will be best positioned to succeed. By embracing these trends, OCIOs can meet the demands of a rapidly changing landscape while delivering meaningful value to client.
