As institutional investors restructure their portfolios to change asset allocations or switch investment managers, Kevin Hardy, Global Head of Transition Management at Northern Trust, says he and other industry watchers have spotted a trend toward increased use of transition managers.
“A number of factors support the use of transition managers, including the need for investment managers and asset owners to free up their own resources, focus on their core competencies, and the need to manage the ‘costs of change” – and not only the explicit costs involved in moving large groups of assets,” Hardy said in a news release.
Hardy said some examples of “transition management” are all activities dedicated to helping funds restructure assets that are cost and time effective, such as liquidations to raise cash, manager changes with the same asset class and strategic asset allocation changes.
Other benefits can include: minimizing trading costs, maintaining target portfolio, or benchmark exposure, managing the entire transition event, controlling all forms of risk, providing transparency into the process and providing reporting on all costs.
“Increasingly, clients want transition managers to assume fiduciary responsibility and avoiding conflicts of interest is important,” said Hardy. “A transition manager who can serve as an investment advisor brings a lot to the process. Similarly, a transition manager who acts as an agent rather than principal in transitions provides peace of mind to clients.”
Hardy said that Northern Trust saw significant increases in its transition management business during fiscal 2004, when the value of assets transitioned increased by more than 70 percent.