2020 Transition Management Survey | Chief Investment Officer

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Summary & Methodology

Navigating a New Universe

Allocators make careful changes after the COVID-19 crash.

The beginning of 2020 was normal for transitions, or asset allocators transitioning portfolios, until the pandemic hit. After that, as is common in times of volatility, allocators chose to rebalance their allocations and not make big transitions.

Then, in April, after the fastest crash on record had settled a bit, allocators tepidly began to make changes. Often, the changes were to areas in their portfolios that had been on their underperformance watch list. Other transitions reorganized to asset managers at larger firms. Still others made moves to align with original investment philosophies or to increase environmental, social, and governance (ESG) investing or diversity.

“Transition activity was steady across all mandates and regions. ESG and a focus on diversity continue to play a role in client portfolio decisions for our global clients and we would expect that trend to continue in 2021 and beyond,” said Tom Schoenbeck, global head of transition management at Aon.

This year, we at CIO have updated our annual transition management survey to include the most important issues to the industry, with new categories and scales added. We’ve also included a provider survey to review provider experience and capabilities in order to better understand the competitive landscape.

Overall, our survey shows that 2020 was quite the year for transitions. In fact, the first half of last year saw almost as many transitions as all of 2019 (when we last conducted a survey). Now, for 2021, 70% of respondents are expecting as many transitions (50%) or even more of them (20%) compared with 2019.

A greater percentage, or 59% (up from 53% in 2019), reported “manager underperformance” as the main reason for their shifts. According to a consultant in the industry, there was quite of bit of scrutiny measuring returns net of fees last year. Many of the swaps were in US equities and in active management. Also, as the desire for more diversity took center stage, many took the opportunity to hire more diverse teams when they transitioned away from the status quo.

Aon also saw the trend of allocators terminating managers due to underperformance or plan restructurings. From its perspective, the beginning of the year was consistent with prior years, but when the extreme market volatility began in late February and continued throughout most of March, clients paused or delayed certain types of asset transition events that had been in the planning stages.

“Aon spent a great deal of time helping clients navigate the global economic uncertainty and understand the cost and risks associated with implementing a transition event during a period of extreme volatility,” said Schoenbeck. As markets turned volatile, the firm worked with clients on transitions related to rebalancing. Then, as markets stabilized and transaction costs returned to normal, Aon saw an uptick in transitions that began in April and continued throughout the year.

Also of note: 36% of our survey respondents cited fund restructurings as their reason for transitions, up from 32% in 2019. Although still one of the top three reasons, a smaller percentage, or 41%, made transitions because of allocation shifts than they did in 2019, when 48% claimed it as one of their main reasons.

Most respondents have a stable of professionals that are already approved when they make their changes. In fact, when transitioning, 75% used an approved panel when making their changes. About half of respondents had one or two approved providers on their panel, while the remainder had three or more.

—Christine Giordano

Methodology

The 2020 Transition Management Survey was conducted in late 2020 and gathered responses from both providers of transition management services and the clients they service. The objective of the research was to understand each provider’s experience and capabilities while also generating insight on the industry trends and client satisfaction connected with recent transition management projects. A total of 133 asset owners and eight service providers replied to the appropriate questionnaire by the close of fieldwork.

Results from the survey have been aggregated and organized in industry trends and vendor profiles, which include client satisfaction data and other information on the vendor’s business. To qualify for satisfaction rankings, providers needed to be rated by a minimum of 10 clients that contracted transition management services between January 1, 2019, and September 30, 2020. To participate in future Transition Management surveys or to receive information on licensing of associated data/content, please email surveys@issmediasolutions.com.

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