A higher proportion of US defined benefit (DB) pension plans are seeking the support of an outsourced chief investment officer (OCIO) to help with their asset allocation decisions.

That’s according to analytics firm Cerulli Associates, whose experts say developments in pension accounting, regulatory changes and rising pension costs have created the trend.

"There are various reasons why institutions are choosing to outsource," explains Michele Guiditta, associate director at Cerulli.

"The majority of providers surveyed are outsourcing because they lack the depth of internal resources and expertise to cover and manage assets across the spectrum, including alternatives and global assets."

Nearly 32% of asset managers polled by Cerulli have an alternative investment mandate for a corporate DB plan that is currently adhering to a derisking strategy.

"These plans are looking to better diversify their portfolios and enhance returns," Guiditta adds. 

"Several public pension plans looking to narrow their funding gaps are increasing their holdings in risky assets, and may need guidance with building an alternative assets portfolio."

Last year a report by Northern Trust said OCIO providers have existing infrastructure to address the complexity that DB pensions increasingly demand.

"Given the current low rate environment, plan sponsors must find the balance between matching assets to liabilities and seeking returns in order to ensure their organizations are financially able to afford the cost and volatility of providing the pension promise.

"DB plan sponsors can focus scarce resources on pension governance while availing themselves of the subject matter experts and implementation experts OCIOs offer," said the study by the Chicago-based bank.

James Tamposi, analyst at Cerulli, adds that asset allocation has become increasingly complex for both public and private DB plans.

"Compared with 20 years ago, when a pension could meet a return target by merely investing in corporate bonds, pensions today must consider equities and alternatives."

Corporate DB plans are regulated differently than public plans and face varying obstacles as a result.

"Although private DB plans are more often using alternatives than public DB plans due to differing incentives, 67% of alternative asset managers surveyed state that public DB plans are one of the client segments that present the best opportunities for alternative managers," Tamposi adds.