TRANSITION MANAGEMENT
TRANSITION MANAGEMENT
Bridging the gap between legacy and target portfolios
FILIP SKALA, CFA
Managing Director, Head of Transition Management
What is transition management?
Transition Management (TM) fills a gap when plans are undergoing a change.
TM is a process of managing changes to a fund's portfolio
of assets
Often viewed as a short-term investment assignment
TM aims to reduce costs and mitigate risks associated
with changes to investment exposures
Transition managers are usually third-party providers
linked to investment banks, custodians or asset managers
The Transition Manager is accountable for performance
throughout the event
Old Manager IBM 30% MSFT 30% JNJ 40%
Minimize performance slippage by managing exposures Minimizing Costs Managing Risks Project Management
New Manager IBM 40% MSFT 20% CAT 40%
2 BTIG TRANSITION MANAGEMENT ? BRIDGING THE GAP BETWEEN LEGACY AND TARGET PORTFOLIO
What brings about a transition?
The Winds of Change......
Common circumstances that trigger TM: Replacing an Asset Manager Asset Allocation Changes or Rebalancing Fund Mergers Asset/Liability Matching Redeeming Assets Investing Contributions or Other Cash Flows
3 BTIG TRANSITION MANAGEMENT ? BRIDGING THE GAP BETWEEN LEGACY AND TARGET PORTFOLIO
Why use a transition manager?
Transition Managers Strive to Minimize the Performance Impact to the Portfolio
Minimize Costs
Transition Managers minimize portfolio
turnover
Utilize sophisticated trading strategies
Mitigate Risks Transitioning assets takes time Risk of performance deviation between the
target and transition portfolios
Value of Portfolio
102.5 102
101.5 101
100.5 100 99.5 99 98.5
Day 0
Day 1
Day 2
Day 3
Target Portfolio
Performance Impact (Implementation Shortfall)
Day 4
Day 5
Transition Portfolio
4 BTIG TRANSITION MANAGEMENT ? BRIDGING THE GAP BETWEEN LEGACY AND TARGET PORTFOLIO
Why use a transition manager? (Cont'd)
Transition Managers Utilize Their Project Management Skills Transfer of Risk
Trading and operational issues become the
responsibility of the Transition Manager
Lower Workload for Staff Transition Manager works with all
stakeholders as an extension of plan staff
Elimination of Performance Gaps Transition Manager assumes responsibility
for performance
Detailed reporting Pre, intra and post-trade reporting
5 BTIG TRANSITION MANAGEMENT ? BRIDGING THE GAP BETWEEN LEGACY AND TARGET PORTFOLIO
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