DBSummit07: Extracting the Most out of Your Transition Manager Relationship

Recent regulations have sparked the need for defined benefit plan sponsors to implement changes to plan administration and/or investment strategies and consider hiring or changing service providers.

align=”center”> Audio Recordings of the 2007 DB Summit Are Available Here 


John Keefe, Contributing Editor, PLANSPONSOR magazine, and panel moderator at PLANSPONSOR’s DBSummit in Washington, D.C., portfolio performance (along with cost) that deviates as little from the market as possible during the change is a measure of a successful transition. Sponsors should check in frequently with transition managers to make sure risk is being controlled.

Hari Achuthan, Director and Head of Transition & Pension Strategy Sales at Credit Suisse, added that systematic risk, such as the risk inherent in the market at different times of the month or year, is also a factor. Sponsors should make sure the transition manager also focuses on systematic risk.

Things to Look For

Things sponsors should look for in a transition manager, according to panel member Steve Kirschner, Senior Investment Strategist, Investment Management, Russell Investment Group, include:

  • Allocation shifts to fixed income, using LDI and longer durations,
  • A fluid relationship with both old and new service providers – a transition manager should realize all changes have an impact on the plan’s investment portfolio and act as an “interim manager,”
  • Short-term investment oversight, and
  • A focus on new strategies that can add value for the sponsor.

Jim Kelly, Bear Stearns Transition Management, noted there is a TCharter offering best practices transition managers should follow, that primarily expresses rules on disclosure. The TCharter calls for disclosure of revenue streams, a business continuity plan, and strategies to be used, Kelly said. Sponsors should document in the service agreement whether the transition manager will act as an agent or principal, and they should make sure the costs are reasonable, he added.

Keefe told audience members that Paul Sachs, Consultant at Mercer, who could not be on the panel, told PLANSPONSOR previously that sponsors should establish a roster of transition managers to call on because every transition is different.

Decision Points

Steve Glass, J.D., Head of Plexus Plan Sponsor Group, warned that sponsors should realize that establishing a roster to meet different needs or asking a transition manager to be a fiduciary does not absolve them of their own fiduciary responsibility in selecting the manager. Glass offered seven questions plan sponsors should ask when making the transition manager decision:

  • What are the trading and performance risks with this particular transaction?
  • What are the operational needs for the portfolio?
  • What is the plan sponsor’s risk tolerance?
  • What are the timing constraints of the transition?
  • What do the answers to the previous questions indicate about the transition strategy and type of manager needed?
  • Does the transition manager considered have the capability to implement the strategy needed?
  • What goal should be expressed to the transition manager (time frame, change desired, smooth process, etc.)?