UK - GlaxoSmithKline's £900m ($1.5bn) buy-in deal last year would not have been possible without transition managers, said Martin Mannion, director of pensions finance, investments and risk.
GSK entered into a buy-in deal with Prudential in November of last year. (Global Pensions; 16 November 2010)
Speaking at a recent transition management debate hosted by Global Pensions, Mannion (pictured) said the whole event lasted nine months.
He said: "I don't think the deal was physically possible without a transition manager because you had potential contracts you were entering into, you were attempting to hedge, you were attempting to buy into their wish-list ahead of time... So I think that's in the category of ‘don't even go there without a TM'."
Providing colour on the portfolio, Mannion said GSK started 2010 owning corporate credit, "we rebalanced into a different asset allocation, we gave it to the insurance company and they promptly then gave it back to us... You really do test the skill of the transition manager."
Other participants included senior investment consultant at Hymans Robertson Mark Jaffray, head of EMEA transition management for Russell Investments Chris Adolph and Clare Piper, senior vice president of product management and sales at ConvergEx Global Transition Management.
Both transition managers on the panel said they've seen a pick-up in fixed income-related deals, but the asset class provides distinct challenges to transition managers.
Piper and Adolph said managers should have a specialist team in place to deal with the challenges.
"(Fixed income) is operationally more difficult; it's harder to price. We have had a lot of instances where bonds are priced and the client will come to us and say, ‘My portfolio is worth £200m'. We show it to our strategist who prices it and we have to go back to the client and say it's worth £120m, because the pricing sources that are coming out of their custodians are just not priced. They're too illiquid in the market," said Piper.
Adolph added: "If you start trying to prepare or analyse a fixed income transition with an equity head on, you will fail. They are obviously completely different in terms of how you approach it, liquidity profiles are different, the risks involved in terms of not only duration, but in terms of the actual underlying type of securities you're dealing with, price discovery. At every stage along the line there's something different that is not equity based."
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