“Most of these issues are manageable,” he said. “But in doing so credit risk is transferred into systems, legal, operational and personnel risk.” However, some funds managers are bringing profits or losses to account more quickly, with pre-delivery of FX contracts rather than waiting for the full contract period. “We’re seeing more and more pre-delivery,” Lewis Bearman, the chief operating officer of Perennial Investment Partners, said. The top operational challenges to be aware of, he said, were: . Managing custodial relationships – ensuring effective global operation and strong relationship building . Varying international settlement standards and cutoffs, ensuring all times are met and there are no settlement issues .

Getting FX right – relationship, reconciliation and rapport . Managing corporate actions and stock lending, requiring up-to-date and accurate information . Managing the different time zones. Globa l p ortf olios and transiti on man – ag ement Transition management costs have doubled in the past 18 months and super funds need to factor this extra cost into their decisions to change managers, according to Jonathan Green, senior manager, investment facilities, NSW Treasury Corporation. While expressing his own, rather than T-Corp’s, views at the seminar, Green said that transitions had become more difficult since September 2007 due to the increased volatility in the domestic and international markets. “Costs have gone up in recent times,” he said. “They spiked last October. While they’ve normalised somewhat they could go back up. Eighteen months ago, it cost about 30bps for an Australian mandate to transition or 15bps for an international mandate.

Now you’re looking at double that.” Intra-day volatility could “really blow out” costs, he said, so the selection of the right transition manager was more important than ever. “You should use seasoned campaigners with market savvy, not just flow junkies. They should have multiple options and a real presence in the markets.” He added that Australia was serviced by more transition managers than anywhere else in the world – those based in the US and Europe as well as Australian-based managers. Green also advised the use of a range of benchmarks, not relying solely on the popular implementation shortfall assessment. “For example, have a look two weeks after the transaction and see what the stocks have done. And be prepared to stop (if the costs are too high).

Look at the risks from an end-to-end basis… We’ve had transitions where we’ve changed the strategy intra-day.” The custodian needs to be given as much notice of the transition as possible. In fact, according to NAB’s Michael Johnson, the head of transitions and implemented services for Asset Servicing, the notification period is the most important element in a transition. “You have to let us know as soon as possible, to allow accounts to be set up, resources allocated and touch points identified, interested parties notified and security identification provided,” he said.