Well, I’ve done it. In researching this month’s cover story, I’ve spoken to every single transition manager currently offering their services in Australia. I’d like to be able to report, with apologies to Jeremy Cooper, that the super fund dog is wagging the transition management tail, but I’m afraid I can’t because after interviewing a dozen of these people, I’m so confused I don’t know if I’m looking at a canine or a cantaloupe.
We have here a classic case of our industry piling layers of complexity on to something that should be very simple: a fund wants its assets moved from Portfolio A to Portfolio B, and done so as seamlessly as possible. The trouble starts when you ask a TM why their way of getting from A to B is better than the guy next door’s. They begin to talk of models, full service vs agency only vs project management, for which everybody has a slightly different definition.
Then they start calling each other names. The investment banks say trading is their bread-and-butter, and transitioning via the liquidity of their global network is the cheapest and most effective way to get it done. It might be if the banks were telling clients everything, cry their competitors from the asset consultants, asset managers and agency brokers. According to them, the investment banks are skinning clients alive, using a low upfront commission to hide the fact they are having a party with the super funds’ “dumb liquidity”.
The banks counter that these intermediated models never break up most transitions anyway – you’re paying more for the same result as if you’d gone direct to a UBS or Citi in the first place. And by the way, did you know this so-called ‘pure agency’ player quietly offers clients a 20 per cent discount on trades put through its affiliated broker? All this gets back to Jeremy Cooper (hasn’t everything this year?) and the point that super funds could be doing more to wrest control of the situation.
Those large enough to marshal the resources already are. AustralianSuper has called in Inalytics to build a database of its transitions and how they have performed; FuturePlus, servicing three funds and $10 billion, has hired a transitions specialist, possibly an industry first. A public performance survey of transition managers would help, divided by asset class and using aggregate performance against implementation shortfall as the benchmark. Asset consultant moves toward specialist comparison of TMs will also assist.
The scrutiny of ‘regular’ funds managers, and the transparency of how they have performed, has helped keep their Australian prices among the absolute lowest in the world – despite what The Coop might think. Uncovering the same truths about TMs will be a torturous process – I can tell you firsthand – but it will be worthwhile, particularly as funds continue reorganising portfolios into 2010.