Jaco Maritz of Gryphon Transition Management answers some frequently asked questions about Transition Management:
Why use a specialist Transition Management service?
Asset owners such as pension funds and multi-managers, face considerable risks when implementing changes to an asset manager or an investment strategy. Moving a large portfolio is a complex process that involves more than just reallocating assets. Risks include loss of investment exposure, high trading costs, and operational complexities, but there are also potential tax implications, regulatory requirements, and liquidity constraints to consider. These challenges highlight the importance of appointing a professional transition manager.
What exactly is Transition Management?
Transition Management is the professional supervision of the entire process of moving assets from initial portfolios to target portfolios. Transition Management addresses the following aspects:
· Important risks during the process
· Timelines for executing trades
· Visible and hidden costs
· Legal and administrative requirements for asset transfers.
When do you need the expertise of a Transition Manager?
In an environment where there is increasing pressure on trustees, asset consultants and asset owners to optimise a fund’s assets, it would be worth using a Transition Manager if you are making changes to the following within your fund:
· Asset allocation
· Investment strategy
· Investment managers
· Positioning to accommodate member choice
· Fund structure, such as transitioning from a stand-alone fund to an umbrella fund
What are the benefits of Transition Management?
1. Minimise the cost of change
Trustees are becoming more aware of both the direct and indirect costs associated with moving assets, which are increasingly quantifiable. A Transition Manager will measure, monitor, and plan the transfer process to effectively reduce these costs.
2. Monitor and manage risks
Transferring assets involves several risks, including operational risks, delays, liquidity risk, and market movements during the transfer. Centralised project management, specialist investment expertise, sophisticated quantitative and risk modelling, derivative expertise, and global dealing capabilities can help mitigate these risks.
3. Optimise portfolio exposure during the transfer and preserve the value of the fund
Even a short-term change in asset allocation during the transfer process can impact the overall performance of the portfolio. The sooner assets are moved to align with the target portfolio, the more optimal the outcome will be. A Transition Manager uses sophisticated investment techniques and derivatives to protect the current fund value, mirror the target portfolio, and optimise market exposure during the transfer.