Towers Watson Launches First Transition Management Service

(February 15, 2012) — Towers Watson has become the first consulting firm to line up a panel of transition managers for institutional clients switching fund mandates, as investors worldwide more closely scrutinise the performance of their individual providers.

The consulting firm is in the process of bringing together a group of providers to be made available to investors looking to move portfolio assets and will act as a middleman to avoid lengthy and complex tendering processes by individual pension funds and other institutions. It will also tackle any operational or post-trade issues.

Colin Rainbow, Senior Investment Consultant and co-ordinator of the panel, told aiCIO: “It is the first panel of its kind in the industry. Implementing a panel will be cheaper and a quicker process for investors as they do not need to go through the tendering and much of the legal aspect.”

Some larger pension schemes, such as the Pension Protection Fund, the United Kingdom’s lifeboat for bankrupt company funds, and the Merseyside Pension Fund have established their own in-house transition management panels. This allows them to have providers on standby should they want to move assets quickly.

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Rainbow is setting up the panel in the UK to begin with, but is likely to expand the idea globally over the next 18 months.

The company has hired Jag Bains to its quant group and he will be one of the transition management panel reviewers. Bains is well known to the market, being the ex-head of Barclays Global Investors’ (since merged with BlackRock) transition management business.

Rainbow said Towers Watson would monitor each member of the panel as part of the business proposition, at a time when there is increased scrutiny: “If there is a problem with one provider, Towers Watson will deal with it and seamlessly replace them with another – the client does not need to get involved.”

As a supplement to the panel, Towers Watson will also offer a service to examine the performance of the transition manager and post trade activity.”

Last year State Street took action to compensate clients it had overcharged through its transition management franchise in the UK. In the United States State Street and other custodians acting as transition managers have faced legal claims from institutional investment clients over their charging processes for foreign exchange practices.

For an in-depth look into the murky transition management business, watch out for aiCIO magazine, published in late February.

(February 15, 2012) — The level of assets outsourced to one sole third party to invest is set to double in the United States over the next five years but the number of providers will shrink to a core group, research has predicted.

A new study from consultants Casey Quirk has predicted that the $256 billion in assets under management that were invested by just one company on the owner’s behalf at the end of 2011 would rise by an annual 14% to reach $500 billion by the end of 2016.

The study said that in addition to the traditional US institutional market, which included defined benefit pension funds and not-for-profits institutions, there would be opportunities for investment outsourcing firms across the high net worth, defined contribution, and global institutional markets.

However, the study warned that the number of firms that would last the test of time would shrink. It said that those who aimed for longevity in the market had to start targeting clients and shaping their business model for the future now.

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Kevin Quirk, Co-founder and Partner of Casey Quirk, said: “Winning market share today is essential as client relationships tend to last eight years and longer.”

Casey Quirk found that from now on, mandates would be won by ‘best in class’ performers and there would be a ‘market grab’ phenomenon by the most successful companies that would lead to consolidation in the sector.

Quirk said: “By 2015, we expect no more than five to 10 firms will have locked up the vast majority of the market, with remaining players forced to operate as niche boutiques or exit the business. Leading firms will build clear and specific sales and marketing strategies now and support them with adequate resources.’’

The survey predicted that mandates would be won and relationships retained by the resources and techniques offered by investment companies.

The results of aiCIO’s global investment outsourcing survey will be released later this month.