If they’re looking for that new alpha generator, it’s probably best to implement that as quickly as possible. Like
Troy said, stop wringing their hands and trying to find out what the market’s going to do in the next six months. Marian Azer: Delay causes information leakage too. The market’s not perfect, so by the time they actually do make the transaction, half the market knows, you know, that they’re about to do it. Particularly if it’s large, it’s very obvious, and particularly with the Australian market, the ASX, it’s not that big. So it’s very difficult to disguise a large trade.
Troy Rieck: It’s a very gossipy industry. Transitions tend to run in phases. When the manager gets deeply out of favour, everyone lines up. Marian Azer: Yeah. You recognise that particular manager’s stock. It’s something that can’t be helped. It’s a symptom of our market size. So I agree that, if you are about to make a decision and you’re going to have a transition, then do it as quickly as possible.
Having said that too, I think a lot of what we’ve been seeing is fund trans fers. So actual super funds and mergers happening, particularly the third and fourth quarter of last year, and that was particularly difficult because it was moving the whole fund rather than a single asset class across. And we found transition managers were in demand then, particularly those with more of a project management approach. Jim Karelas: The changes that have come through in the tax concessions for successor funds might mean that some of the funds that have been holding off from doing mergers in the past start saying, ‘now might be the time’.
So I think there’s a good chance that we’re going to start to see some further activity. Michael Bailey: Adam, I’m interested to know to what extent exchangetraded funds (ETFs) are being used in institutional transitions and rebalancings. Adam Seccombe: The very noticeable levels of growth in ETF usage last year especially, really are driven by all of the topics that have been discussed this morning. The absence of counterparty risk within an instrument that offers index exposure and deep liquidity, and transparency.
In a world in which the big managers are focused on asset allocation, these products which give transparent, low cost index exposure and that can be transitioned very cheaply, clearly have a long way to run. I’m interested by comments that transitions face problems whereby the footprint of a particular manager can be recognised. One of the things we’ve seen in the States is that actually before transitions, particular investment styles are encouraged to collapse the portfolio into an ETF as part of a creation unit.