Almost half of all transition managers are hired by US pension plan sponsors without a formal search or any outside advice, reports Greenwich Associates.
“This largely informal process stands in stark contrast to the rigorous procedures typically used by plan sponsors in the selection of investment managers and for other critical decisions in plan management,” says Greenwich Associates consultant John Colon. “Furthermore, many plan sponsors do not appear to be completely confident in their ability to quantify goals and measure effectiveness when it comes to the transition of assets.”
Asset transitions occur when an institutional investor decides to change asset managers. In simplest terms, transition management can be seen as the short-term investment management that takes place as assets are transitioned from the old manager to the new.
A new White Paper from Greenwich Associates entitled “Transition Management: Too Important to Leave to Chance,” Greenwich Associates reports that only one in 10 U.S. plan sponsors issues a request for proposals when selecting a new transition manager. Instead, 45% of plan sponsors choose their managers without a formal search or any outside guidance. Approximately the same percentage choose their providers after receiving advice from their investment consultants. This relatively informal procedure often results in the selection of the provider that managed the plan’s last transition or a firm with whom the plan sponsor has some other business relationship, such as their current global custodian.
“This process represents something of a practical middle ground,” says John Webster. “One reason that plan sponsors might not want to undertake a formal search for a transition manager is the fact that the plan is most likely already in the midst of a search for a new manager. In such a period, time will be at a premium, and plan sponsors will often elect to use a firm with whom they have a pre-existing relationship as a form of convenience. By having this pool of prereviewed and approved external transition managers, the plan sponsor can be ensured of receiving reliable outside assistance without having to devote the resources and attention to a formal search.”