The usual tension surrounding the traditional buy-side/sell-side divide wasn't immediately apparent at this year's Global Pensions Transition Management Forum in London, but was instead replaced by a clear call for these providers to drop their cloaks and provide more transparency. A strong theme emerged during the September event that made it clear transition managers have far to go before being completely trusted by the pension fund community.
Transition managers are being bombarded by requests for transparency both around their systems and around costs. Delegates spoke about the need for transparency around performance, costs of algorithms, access to details about real-time trade executions, fees, and the list goes on.
Speaking at the event, Chris Adolph, head of transition management for Europe, Middle East and Africa at Russell Investments cited a startling fact from TowerGroup. Out of the total revenue paid to transition managers, only 25% related to the actual commissions that were explicitly charged.
Transition managers have been able to get away with this in part because of the complexity of what they do and in part because of a lack of understanding from pension funds and other clients about how to monitor their TMs. But it seems that asset owners, and indeed some transition managers themselves, are calling for change.
The industry is currently working on a so-called T-Charter 2.0. The original T-Charter was launched in 2007 and serves as a code of best practices for transition managers. It requires clarity around costs, remuneration, conflicts of interests and other issues.
Since the launch of the charter, transparency in the industry has improved by leaps and bounds, but so too has the knowledge of pension fund managers. As Martin Mannion, the chairman of the T-Charter and director of pension finance at GlaxoSmithKline said, the industry has moved on.
The original charter has its weaknesses. It lacks a policing force to ensure managers are actually compliant. And conveniently, it was developed by the managers themselves. Having Mannion, an asset owner himself, at the helm is a strong signal of the direction the new iteration of the T-Charter could take. At the event Mannion said he’s looking for feedback from pension funds and other investors about how to strengthen the charter.
The idea is for the next phase to reflect not only the ideas of the managers, but the needs of pension funds themselves. By sharing the development with pension funds and asset owners, hopefully we’ll finally get some clarity around this sometimes opaque industry.
*To read more about the latest trends in transition management, read our Transition Management Supplement on pages 23-35
*To contact Martin Mannion, email: [email protected]
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