July 2012

Transition Management:Return to Clarity

Illustration by Sam Wolfe Connelly

If the transition management industry were a television show, it would resemble “Law & Order” rather than “Seinfeld.” If the industry were a book, it would be “Crime and Punishment,” not an Oprah’s Book Club selection. If it were a movie … well, you get the point. This is an industry that, while often thought of as staid (and dare we say, boring?) over the past year has been anything but.

The details of such intrigue are well-known. As reported by PLANSPONSOR sister-publication aiCIO, firms such as State Street and Convergex have recently experienced problems with their transition management services. Some of these problems were aberrations; some, systemic and extremely serious. This survey seems to show that all had an impact on how the users of transition management view the industry.

While it is difficult to directly compare this year’s survey results with those from previous years, due to numerous changes to the survey structure, a snapshot of transition management user opinion shows a general distrust of the industry. Asset owners typically give themselves high marks for their understanding of the transition management business, but their views on providers are less rosy. “I suspect these self-ratings are still too high,” says industry veteran Stephen Glass of Zeno Consulting. “That causes me concern, because it suggests fund fiduciaries have a false sense of security, with all the risks that implies.”

 When asked to rank their trust in the “transition management industry as a whole” on a scale of 1 (no trust) to 5 (complete trust), neither corporate (average 2.6) nor public (3) pension plans gave rave reviews. Of the entire respondent base, not one asset owner gave a rating of 5.

This relative lack of trust does not imply a lack of demand, however. All in all, various drivers are pushing asset owners to continue, or even increase, the rate at which they transition assets. The year ending December 31, 2011, saw 47% of corporate respondents and 48% of public plan respondents reporting more transitions than the year before. The average corporate respondent reported 3.3 total transitions conducted over this time period; for public plans, this figure was 7. The major reasons for such transitions: asset allocation shift (47% for corporates, 55% for publics); manager performance (47%, 55%); and the restructuring of the fund (20%, 50%).