So clients are becoming a lot more savvy and a lot more aware because it’s obviously going to affect their performance. Michael Bailey: Has the T-Charter (a global performance measurement standard signed by most major transition managers) engendered greater confidence in using transition managers and making transitions? Troy Rieck: Yes and no. I worry that it leaves out a big chunk of risk which is the time delay between making a decision and actually starting. So the implementation short fall measure is… all else being equal, is probably a good measure, but you need to include all the risks in that.
So the risk of waiting for a month or two months, or three months, who’s going to be held accountable for that? Who makes that decision and on what basis? At the moment it’s only measured from the time you pick up the phone to Jim and say, right, we’re going. Who’s accountable for before that phone call’s made? I hope to see increased requirements for reporting post trade analysis.
To some extent funds previously may have thought their job was to pick the active managers and not worry about the alpha. Okay transitions occur and that incurs costs, but it’s there. Take responsibility for the whole box and dice. They’re much more interested now. And the flip side from that will be a greater accountability for the entire decision making chain. Jim Karelas: The trend with certain fund managers is, certainly from a transaction cost analysis or total implementation short fall analysis perspective, is, as soon as an analyst decides that they like a stock, they’ll basically time stamp the particular stock.
So they have a look at the price and it could take maybe a three to six week period to analyse that stock, and it finally gets in the portfolio. So in terms of measuring the total implementation short fall, the cost has been from that time stamp. Well six weeks ago the price was this. We’ve actually got it in our portfolio on T. So they actually do measure the period in between in terms of what the cost has been in not having it there.
Drew Vaughan: I think the other wrinkle in here which the T-Charter doesn’t always address well, is the distortion in the Australian market place caused by the imputation credit model that exists here, which encourages funds to hold physical equities to derive dividends which have imputation credits which are fully franked attached to them. And then penalises them if they transact them within certain time periods.