Transition management in perspective

Global Pensions gathered a panel of experts to discuss the strengths and weaknesses of transition management

Raquel Pichardo-Allison: Using a specialist transition manager is increasingly viewed as industry best practice for asset owners, particularly pension funds making changes to their investments. The schemes that recognise the risks of transitions and hire transition managers, however, face enormous challenges over how to select a transition manager and how to evaluate the end result.

This debate will look at transition management from both sides of the fence. We’ll hear from asset managers about what trends they are seeing with regards to asset flows and asset changes, and we’ll look at how pension schemes are having to become increasingly savvy about what they can expect and should demand from transition managers.

Chris and Clare, has there been a pickup in the number of schemes using transition managers?

Chris Adolph: I think there definitely has been a trend upwards in terms of how many people use a transition manager. And certainly organisations like the T-Charter have helped broaden awareness. There’s been more debate about transition management in the realm of risk management and also cost management. All that has helped focus on these events and the use of a specialist transition manager.

Certainly activity was quieter during the credit crunch and that led to an even greater proportion of events once that period softened a bit. So we have definitely seen in the last two years a significant pickup since those quiet times.

Clare Piper: I agree. I think that as clients have become more knowledgeable on the subject, and also with the push from consultants, they are now putting forward transition management; they’re doing their own due diligence. A lot of the local authorities and also a lot of smaller pension funds are starting to see the value in the product.

Raquel Pichardo-Allison: Mark, have you seen this shift that Clare mentioned of smaller funds using TMs more than they did in the past?

Mark Jaffray: Yes. We have had the post financial crisis fallout of some active managers not performing particularly well, and that’s led to change. We’re generally strategically seeing pension schemes move from equities into bonds, a de-risking programme, and those de-risking programmes can often be trigger based, market based. Transition managers have a lot to offer in that regard because they can monitor those triggers and effect exposure changes very quickly, much quicker than a client could in terms of sacking one manager and moving the money to another manager, say.