Transition Management Roundtable 2023 – exploring client needs

Transition Management Roundtable 2023 – exploring client needs

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Transition Management Guide 2023 Header Industry Roundtable

Client Needs 

In early December 2022, Global Investor brought together the industry’s leading transition managers and consultants to discuss some of the key issues affecting clients including costs, the impact of interim solutions, the evolution of data analysis, and how business models are adapting to market conditions.

A portion of the 2023 Transition Management Roundtable is available in the video above. See below for a transcript of the highlights. 

Transition Management Guide 2023 Industry Roundtable Participants

Amelie Labbe: Are clients becoming more cost conscious and have managers become better at explaining the value of the service and of what they provide?

Cyril Vidal: It is about managing costs and reporting them. But more important is listening to what the client wants us to report and how they see cost internally and make be sure we don’t deviate too much from that.

James Woodward: What we have seen with market volatility is greater variability in terms of pre-trade versus actual result. Typically, if the clients use an implementation shortfall type benchmark it is not uncommon to see an overnight gap of 20 or even 30 basis points.

There are some ways in which we can mitigate that overnight risk, but it really comes down to those markets - if you are trading the next day using a previous close benchmark, they are not available to trade because those markets are closed.

At the pre-trade stage we have done a much better job over the past five years as an industry in terms of outlining volatility. Many of us have used calendar heat maps to help guide customers in terms of particular days where there may be an earnings release or an announcement from the Fed. However, sentiment is unpredictable.

David Edgar: James is making a key point there are only certain costs that a transition manager can control – and the definition of ‘cost’ in this context is also important. We call it costs because transition managers have this implementation shortfall benchmark, but the reality is a lot of it is actually portfolio performance and it is a measure of what is happening to the performance of portfolios relative to each other as you switch from A to B. Most of that, generally, is due to external market factors over which an individual transition manager has little control.

Ashish Patel: We’ve talked about transaction costs and market costs, but another element to consider is the most cost-effective fund structure, how clients think about pooling funds to mitigate operational costs and have more streamlined structures.

It is up to us to explain the qualitative and quantitative drivers of cost and link them in a very easily digestible format to the client.

Paul McGee: We should remember that the value of a transition manager goes far beyond just cost reduction. So as long as the actions you have taken whilst managing the transition have been appropriate and suitable, the costs will be what the costs will be. There is much more to the value-add of employing a transition manager, such as taking away the operational burden from clients, and coordinating all the project stakeholders.

Andy Gilbert: I agree. What we are really talking about here is trying to preserve portfolio performance as we go through a transition, and what we are actually doing is estimating what that performance is likely to be.

That ability to estimate is influenced by many factors but I totally agree with Paul’s point. The value add of a transition manager isn’t just limited to preserving portfolio performance - managing operational risk is just as important.

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