Mercer to Acquire Vanguard’s US OCIO Division

Mercer, the financial services and consulting arm of Marsh McLennan, has agreed to acquire the Vanguard Group’s U.S.-based outsourced chief investment officer business.

Mercer, which provides OCIO services to retirement plan sponsors, plans to complete an acquisition of Vanguard Institutional Advisory Services in the first quarter of 2024, according to a Tuesday announcement. Neither firm provided terms of the deal.

Vanguard’s OCIO business is focused on not-for-profit organizations and other institutional investors and will add more than 1,000 clients and about 120 employees to Mercer’s existing OCIO business, according to an update on Vanguard’s website. The total full discretionary assets in the business was $52.3 billion as of June, according to Chief Investment Officer’s OCIO survey. CIO is a sister publication of PLANADVISER.

The move comes shortly after Marsh McLennan announced that Mercer will be getting a new CEO and president at the end of March 2024. In an October announcement, Pat Tomlinson was named president, with plans to take the role of CEO from Martine Ferland when she retires in March.

Mercer’s acquisition of Vanguard’s OCIO business was driven in part by its strength in the not-for-profit sector and “client-centric” approach, Marc Cordover, Mercer’s U.S. investments and retirement leader, said in a statement.

“We know institutional investors, and not-for-profit organizations specifically, continue to face a range of challenges,” Cordover said. “They require robust solutions and global expertise to stay ahead of the curve.”

Shekhar Mukherjee, a director at Clearwater Analytics, notes that one reason for the deal may have been that the OCIO market has become a scale game, with the biggest players having the infrastructure and scale to make the business work. Among those firms are Mercer, BlackRock Inc., Russell Investments and the Goldman Sachs Group Inc., some of which Clearwater works with as clients.

A second reason for the deal, Mukherjee notes, is that OCIO clients have been “getting more sophisticated over the years” when it comes to the investment mix on offer. While asset managers still offer their own funds for the investment strategies—often as the majority of investments—there is more demand for third-party options and varied investment strategies such as alternatives.

“Clients want exposure beyond just funds and ETFs, as they’ve gotten less comfortable with that model over the years,” he says.

Finally, the “buyers are changing” for OCIO services overall, Mukherjee says.

In the past, the focus was often on retirement pension plans in the defined benefit space. That has shifted over the years toward asset owners across sectors, ranging from corporate retirement plans to insurers to entities such as not-for-profits, the area featured in Mercer’s deal for Vanguard.