In an environment of fund fee compression, leveraging a private managed account platform may offer an easier way for an outsourced chief investment officer (OCIO) to get approval from pension fund investment committees.
The traditional consultant model has been non-discretionary, where the consultant makes investment suggestions to the pension plan board, which then makes a collective decision. Now, the consultant community is pivoting to act as the OCIO as institutions look to reduce pressure on internal resources and deal with the complexity of generating sufficient returns to meet their long-term liabilities.
The growth opportunity in this space is clear, with OCIO-managed institutional assets having risen 23 percent to USD1.74 trillion according to Pension & Investments’ money manager survey.
This is playing very much to the advantage of platform providers such as Gemini, which operates an open architecture environment that facilitates the creation of Dedicated Managed Accounts (DMAs) for large institutions.
By utilising this type of solution – which is essentially an ecosystem that is owned and controlled by a single institutional investor – an OCIO manager can closely monitor underlying managers on a regular basis. More importantly, the solution provides tangible cost reductions; something any investment committee notices.
“An OCIO realises they have the ability to structure something more beneficial to the pension’s participants. They can aggregate all of their operations and also reduce costs, which ultimately augments the pension’s underlying investment pool,” comments David Young, President of Gemini.
“The struggle pensions go through to meet their long-term liabilities is substantial. They have to safeguard the wealth of thousands (if not hundreds of thousands) of people. The fact that just the structure alone can offer a 100 basis point savings is critical. And something pension boards might not be aware of.
“It’s easy to say you can save someone money, but we can demonstrate how you save money,” asserts Young. “Rather than continuing to invest with multiple layers of costs coupled with inefficient operating structures in place, which leads to errors and mistakes getting magnified over time, our solution gives institutions straight-through information at less cost.”
As consultants increasingly move into these OCIO roles to manage owners’ assets, Gemini sees itself as an experienced Sherpa, supporting them as they ascend their proverbial investing summit; explaining the structural alpha they are gaining every step of the way through bespoke reporting.
“We are helping the consultant community better serve their asset owner clients. It gives them the opportunity to present themselves in the best possible light to pension plans,” says Young. In the early days, investors paid a premium to use managed account platforms. “At Gemini, we’ve removed that premium and given these OCIOs a differentiator when competing for asset owner business,” adds Young.
“By leveraging the platform, our clients have been able to trim 20 basis points off long-only strategies just by being able to negotiate fees with advisors. If we can contribute in excess of 100 basis points in alternative strategies through structural and operational efficiency, we think there’s a story to be told. There’s a big difference between saying you had a 7 per cent return on the year versus 6 per cent.”
