News & Views

Portfolio transitions: don’t ignore the essentials

Fiduciary managers take a variety of approaches to managing a portfolio transition, and with varying degrees of skill. Some have dedicated in-house management teams which, as well as working with existing clients, provide services to third parties. These managers tend to be the best equipped to effectively handle a highly-sophisticated transition, including dealing with the risks of being out of the market.

Some use non-specialist teams, while others outsource the process. Others take a flexible approach, using third parties when needed, or when the client requests it.

Picking the right approach will depend on the complexity of a scheme, but in making their decision trustees should consider how a fiduciary manager can effectively keep costs down and manage market exposure throughout the transition.

Simpler schemes, such as those with fund-based investment strategies, might not need the expertise of a specialist transition team, but they should still assess their managers to ensure they have the appropriate controls and efficiencies in place. As schemes become more complex, trustees should consider whether a specialised approach needs to be adopted.

But no matter how simple or complex a scheme is, trustees must be provided with transparent transition plans, reporting, and pre- and post-trade cost analysis so they are aware of exactly what is taking place, and what costs are being incurred.

Trustees who ignore the transition capabilities of a fiduciary manager at the time of the appointment, do so at their peril.

It’s one of the biggest decisions a board of pension trustees can make: to part ways with the fiduciary manager and bring in one of the competitors as a replacement.

For a large and complex scheme, a switch can raise numerous concerns, including how to effectively transition the investment portfolio from one manager to the other without jeopardising any market positions.

At IC Select, we think that when it comes to portfolio transition, it would be wise for trustees to consider a fiduciary manager’s capabilities at the time of the initial appointment.