(May 28, 2012) — The Illinois Teachers’ Retirement System has selected five firms to provide its transition management services — the day-to-day administration of trading stocks and bonds during the rebalancing of portfolios or other changes.
The scheme’s board approved the hiring of State Street Global Markets, JP Morgan, Credit Suisse, Citi Group, and Loop Capitol.
At an industry conference hosted by Citigroup earlier this month, the firm’s Managing Director Pat Curtin — who moderated a transition management panel — commented on the state of the industry, noting that it is still in its relative infancy as a hardcore business.
“For many chief investment officers, transition management, as well as FX and securities lending, are not in the sweet spot of what they do everyday,” Charles Millard, former Director of the Pension Benefit Guarantee Corporation and now Managing Director of Pension Relations at Citigroup, told aiCIO. “The more they rely in any automatic way on their custodian, the greater the temptation to allow it to be opaque. When these services are unbundled from custody, they inherently become more transparent,” he concluded.
Millard added: “Transition management needs a set of best practices which must include greater transparency and disclosure of conflicts.”
Without commenting on the Illinois contract directly, Millard noted that it behooves plan sponsors to have a roster of transition managers. “Some transition managers will be better than others in different segments of the market so it creates a competitive environment that benefits the sponsor, and it increases efficiency by not having to do a procurement each time a provider is needed.”
The Illinois pension seems to be expanding and streamlining that roster of transition management services. Of the six firms selected in 2008, only State Street Global Markets and JP Morgan will continue to serve the needs of TRS, according to a release from the scheme, with $34 billion in assets at the end of December. Following the issuance of a formal Request for Proposal in November 2011, the system received proposals from a total of 13 firms.
The TRS Investment Policy calls on the system to reevaluate the transition management program periodically. The last formal selection of a roster of firms for transition management was done in 2008.