OCIO firms experiencing ‘perfect storm’ of demand

The acquisition of Mason Stevens by private equity firm Adamantem Capital demonstrates the value of outsourced chief investment officer (OCIO) solutions.

Last year, it was announced that Mason Stevens would be acquired by private equity firm Adamantem Capital, with the two firms entering a binding agreement. 

According to the firm, Mason Stevens’ scaleable digital platform and unique value proposition proved attractive, providing differentiated investment solutions for its core adviser and wealth practice customers. 

The investment is expected to support Mason Stevens to further develop innovative solutions for advisers and wealth practices to deliver sophisticated investment offerings to their end-clients.

OCIO businesses, more commonly understood as outsourced investment management, work in conjunction with financial planning practices and larger institutions to create bespoke investment solutions typically hosted on a platform.

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They provide a variety of services such as portfolio governance, manager research and selection, portfolio construction, and ongoing management of investment functions, freeing up advisers to focus on other areas like client relationships and business development. 

Speaking in a recent webinar, Scarcity Partners’ managing partner Adrian Whittingham and investment director Justin McLaughlin discussed the popularity of these firms with financial planning firms and potential opportunities for US firms.

Scarcity took a 30 per cent interest in Evidentia Group in February 2024, a provider of tailored investment portfolios to Australian wealth businesses.

The shift towards larger and more professional financial planning practices, combined with the rise of separately managed accounts (SMAs) as a preferred investment option, is creating a perfect storm for the OCIO sector, McLaughlin said.

“It’s kind of a combination of the need to professionalise – which the financial planning industry is doing a great job of – and the adoption of this SMA model, [that is] really changing at the large end, and ultimately at the small end, how financial planning is going to be conducted in Australia in the next 5–10 years,” he said.

“It’s a big trend and I think those people who have their eye on financial planning are seeing this quite clearly.”
Whittingham pointed to the significant growth of OCIO offerings in North America which could be a sign of things to come in Australia.

“They typically operate in the foundations, the family [offices], the endowments. There are more segments there, and there are north of 70 OCIO businesses in the US that consult or manage on behalf of more than $20 billion. It’s growing very fast,” he remarked.

“It’s clearly a very legitimate sector, the participants here have done well, you hope the financial planning practices do well because of the efficiency gains. 

“I think it’s a real positive development in the ecosystem here for investors, and founders, and for clients.”

However, while US firms may have performed well in their home markets, Whittingham said they may find it harder to achieve that success overseas and a collaboration with a domestic player is more likely as the Australian market is more nuanced.

“We’ve seen plenty of offshore firms come here with a great offering but not have it tailored for this market. So I do think it would have to be a collaboration or a partnership with a domestic player and offshore firm. I can absolutely see that happening.”