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Transition Management Survey 2006
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Moving towards fiduciary models
Transition management has grown into a major business in recent years as pension funds have switched from balanced to core/satellite. Providers may still squabble over the best business model, to the general confusion of clients, but agency transitions seem to be growing in popularity.
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INTRODUCTION
This year's survey demonstrates a swing in preference for the type of transition manager used, while crossing has gone out of favor. The fact that an asset manager, BGI, was ranked best overall weighted transition manager, up from seventh last year, could suggest that clients now prefer asset managers as transition managers. In last year's survey, the broker/dealer model came out top with asset managers in third place. This year asset managers ranked first and broker/dealers have fallen to third. Custodians remain second.
Part of the explanation for this change may rest on an asset manager's fiduciary-like status but another clear factor is cost. This was given as the main reason for changing transition manager.
As for the five most important reasons why transition managers get hired rather than fired, respondents cite trading capability, total costs, expertise in asset class, transparency and confidentiality - in that order. A crossing capability, which last year ranked as the third most important reason for clinching deals, sinks to 12th position.
The fall of crossing as a key factor perhaps reflects mixed feelings about crossing on the part of transition managers. Although recognized as a cheap way of dealing when it works well, many managers say crossing is ultimately limited. But the fall of crossing from this category is perhaps further explained by the increase in importance placed on a manager's expertise in asset classes or markets. This may reflect an increased understanding of trading and risk management strategies - such as derivatives - by respondents and that crossing is not the only cushion.
As a deal-clincher, transparency stayed static, in fourth position. However, for Shropshire County Council, a UK local authority, it was an important issue. Asked why this was, Graham Chidlow, head of finance (treasury and exchequer) at the Council, said: "We have a fiduciary duty to understand the costs that impact our scheme."
Best Transition Manager Overall
WEIGHTED
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Rank
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Firm
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Score
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1
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95.05
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2
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94.30
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3
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89.24
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4
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86.70
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5
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84.56
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6
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82.56
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7
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82.47
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8
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80.50
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9
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79.56
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10
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79.14
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