Catherine Darlington, portfolio manager and Chris Adolph, head of transition management, EMEA
Key skill sets required of a transition manager
To best meet these challenges, a transition manager must have a full range of fixed income management capabilities across long duration physical fixed income (to evolve as the liabilities and client needs evolve). Additionally a transition manager should have derivatives and fixed income expertise embedded within the organisation. Clear and un-conflicted channels should be open between the fixed income traders and transition portfolio managers. The transition manager must also demonstrate a pro-active approach to risk management, not simply passing a basket of names over to their trading desk to be executed. The transition manager should provide evidence of best execution, for example, comparing competing quotes. The benefits of these qualities are illustrated in the case study.
Transition management has always been more than a mere trading exercise. Risk and cost management consistent with the investment objectives of the asset owners make transitions a full-on portfolio management exercise. Add to this the complexities of bespoke portfolios in an opaque market, the expertise and transparency that a transition manager provides, makes the argument for using a transition manager all the more compelling.
Key skills, resources and characteristics of an LDI TM
• Full alignment of interests
• Transparency of cost and price
• Multi asset class capabilities
• Full range of fixed income capabilities – across long duration physical fixed income and derivatives (to evolve as the liabilities and client needs evolve)
• Derivatives expertise – embedded within the team or with clear un-conflicted channels. This can introduce a greater degree of flexibility
• Tactical Knowledge – transitioning into this kind of strategy can be costly if not done with a knowledge of relative costs of exposure-gaining instruments (e.g. physicals, futures, or swaps)
• Operational experience
• T-Standard performance measurement - measurement inherently assigns accountability
