2017 Transition Management Survey | Chief Investment Officer

Past Surveys

2016
2015

Trends show shifts in activity, benchmarks and trust.

TRANSITION management (TM) is an increasingly active area, according to our sixth annual Transition Management survey, with 57% of survey respondents reporting they performed more portfolio transitions this year. The number of transitions is also increasing, with many firms conducting more than five transitions in 2017. That’s up 5% from last year, and 22% from six years ago.

Certain trends were noted: principal trades surged this year, and benchmark preferences shifted to implementation shortfall at the expense of volume-weighted average price, which dipped 6% from 2016. This is likely because implementation shortfall provides for a more holistic assessment of explicit and implicit costs, according to Virgilio “Bo” Abesamis III, executive vice president and manager of Callan’s Trust, Custody and Securities Lending Group.

Art by Jillian Tamaki

“Although not the ‘end all, be all,’ implementation shortfall has an embedded metric to measure the cost of aggravation due to lost opportunity. This gives any fiduciary a reasonable way to understand the total cost involved in transitions,” Abesamis said. Whereas “VWAP is really more on trade execution, and does not necessarily capture hedging, beta management, and risk management techniques deployed during the transition.”

Clients also cared more than ever about the benefits the TM received, and TM agreements are almost always a requirement. “It is about time,” Abesamis said. “It is really an effective tool to manage expectations, a venue to provide transparency and disclosure, and an affirmation tool on the alignment of interest.”

Despite all controversies in the past, clients reported they trust the TM industry more now. In 2017, 75% reported they “mostly or completely trust” the industry, up from 59% in 2016. —CIO

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