The strength of the broker-dealer model in the Australian transition management market has been demonstrated by the closure of two providers with competing approaches, including one of the original ‘big three’ from the early days of transition management in the 1990s.

BlackRock Transition Management Services, which helped pioneer the ‘asset management’ model for transitions to Australian institutions,  will disband its Melbourne-based project management team. The long-term head of that team, Liliana Colla, as well as operations head Janine Cooper and transitions analyst Thekla de Rango, have decided to leave BlackRock at the conclusion of a three-month workout period.

The chief executive of BlackRock Australia, Damien Frawley, said the project management aspect of BlackRock’s transition management service would now be run from the manager’s regional headquarters in Hong Kong, where the transitions capability is headed by David Gagnon.

He said the trading and execution aspects of Australian transitions, where interaction with Australian brokers was required, would still be carried out here.

Frawley hoped that Australian institutions would continue to see the benefits of having a transition managed by BlackRock, which following last year’s merger with Barclays Global Investors, is the owner of the largest internal crossing network in the world.

BlackRock, along with Citi and State Street, dominated transition management when the concept first became popular among Australian super funds in the early 1990s.

Then known as Merrill Lynch Investment Managers, the transition team had used Merrill Lynch’s broking area for execution on a ‘first-look’ basis, but Frawley said that arrangement had come to an end three years ago following the funds management business being sold to BlackRock. Colla’s team had worked “incredibly hard” to establish a modest book of clients for its pure asset management model, which could search for best execution from any broker.

However, Frawley admitted the Australian market was infatuated with the broker-dealer model of the big investment banks, now dominated by Citi, Goldman Sachs JBWere and UBS.

The lower upfront pricing of this model, which competitors argue is more than made up for by principal trading in the house’s favour, has nevertheless been a hit among cost-conscious superannuation funds. Industry observers say that State Street, the largest provider using the asset management model, has helped itself attain that position by offering transitions as part of an annual retainer for broader overlay services.

Meanwhile, agency broker Instinet has ceased looking for transition management work in Australia, following a noisy entry to the market last year in which it hired former members of Morgan Stanley’s transition management team, who vowed to differentiate themselves from what they claimed were conflicts within the investment banks’ broker-dealer model – conflicts mostly stemming from the fact these banks had proprietary trading desks.

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