UK - The onus of conducting due diligence on transition managers has shifted greatly to the asset owner, yet gaining access to managers' track records remains a problem, delegates at this month's GP's Transition Management Forum heard.
Graham Dixon, director at Inalytics, which provides analytics on manager performance, said eight of the 13 managers operating in Europe have provided track records to the firm. In November, Russell Investments became the first firm to release its data to Inalytics. (Global Pensions; 29 November 2010)
Dixon declined to provide details of other signatories.
The only way for a plan sponsor to compare actual costs to cost estimates or, for example, how the final result compares to similar transitions is by looking at managers' track record.
"In your due diligence it will allow you to quickly find out who is experienced in your type of transition and who is not... We can see it helps you verify the pre-trade by knowing about the accuracy of cost estimates. You will be able to reject ‘low ball' quotes as unfair and not credible. You will also be able to challenge estimates that have been inflated.
"Clients also like to see performance track records because it highlights how unrealistic a single point estimate is," Dixon told attendees.
Chris Adolph, head of transition management and implementation services for Europe, Middle East and Africa at Russell, said there were originally concerns about the track record would be used, and whether or not it would breach client confidentiality.
"What we're looking at now, certainly in terms of generic information, (is) something like a report in terms of methodology, which also looks at Europe ex-UK. How many events? What's the total estimate? What's the total actual? So even if you don't have the underlying data, you can still go back to clients and say here's our history on Europe ex-UK," said Adolph.
In a separate session, Steve Webster, head of transition management for EMEA at Credit Suisse, talked about creating transparency and understanding of the underlying drivers of transition management fees. He walked delegates through a sample transition report that broke down the fixed costs - commission, tax, redemption levy - from the implicit costs like market impact and bid-offer spread.
"The important thing about all this data is that we are totally, completely transparent with the information we're using because we can't just say, ‘Yeah, look we got 88 basis points and the market moved by 100'. We have to be able to provide the data on exactly how the market moved," said Webster.
He added: "Throughout that process we're allowing the client to dig a bit deeper to see exactly what we estimated, how we estimated, what data we used to estimate it and what strategy we put in place."
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