2023 Transition Management Survey

Adjusting to Post-Pandemic Life

Asset allocation changes leapt to represent 68% of transitions last year, up from 43% in the last survey.

Investing is far from a static business, and asset allocators often revamp their allocations or move holdings to new managers whom they hope will deliver better results. That is where transition management firms come into play, serving as the armored cars entrusted with moving valuable assets from one place to another.

Why are assets on the move in the first place? The overwhelming reason is asset allocation shift, such as decreasing equities and increasing alternatives within a portfolio, at 68%, according to CIO’s 2023 Transition Management Survey. That is far above what respondents in the 2020 survey stated, when only 41% named rejiggering asset breakdowns as the propellant. Perhaps the 2022 market rout, when both stock and bond prices cascaded, was the difference.

Indeed, in the current poll, the second largest cause for a transition was asset manager underperformance, at 43%, while in 2020, underperformance was the main reason, at 59%.

Who are the top TM providers? Russell Investments is the leader in terms of transition events in the year that ended with 2022’s third quarter, with 190 deals. State Street Bank and Trust Co. came in second with 161 transactions, but these deals evidently involved more assets, as State Street ranked No. 1 in assets at $154 billion. (Russell was second in that category, with $130 billion.)

Since CIO has been doing this survey, transition management has been through its own changes. In 2016, the average number of portfolio transitions was 4.8, according to our survey. That peaked at 8.2 in 2019, then went down to 6.2 in 2021. The early pandemic’s economic and market turmoil could have been a factor, maybe because allocators were being cautious amid the economic uncertainties of that time. But for whatever reason, the first half of 2022 had just 3.2 on average, compared with 7.7 in 2020’s first half. The total value of transitions since January 1, 2021, was overwhelmingly on the higher end, with 53% greater than $1 billion.

Transitions can be tricky endeavors. To start with, there is the question of timing. In 2022 and earlier this year, the stock market was much more volatile than now, with the Chicago Board Options Exchange’s CBOE Volatility Index hitting 33 last October and 26 in March (traders view anything above 20 as volatile). Today the index is just above 13.

In light of such turbulence, which could well recur, transition managers have been on the alert about how to implement their changes. Paul McGee, head of portfolio solutions for Europe, the Middle East and Asia at Macquarie Group (a TM provider), said in a roundtable discussion last December by Global Investor magazine that clients “are looking to us to advise them, for example, on whether they should phase their transition as opposed to going Big Bang on one particular trading day.”

A big concern, of course is being out of the market for too long and missing a big upward move. Cash is not the place to be when the S&P 500 has a large leap in one or just a few days.

Derivatives are one way to avoid such a market absence, wrote Travis Bagley, director of transition management for the Americas, and Greg Norquist, a senior portfolio manager, at Russell. But it still is a weighty challenge. As they put it, minimizing “market exposure risks, often across numerous mandates, in real-time, at a single provider, [takes] a rare organizational structure.” —Larry Light

Methodology

The 2023 Transition Management Survey was conducted between late 2022 and spring 2023 and gathered responses from both providers of transition management services and the clients they service. The objective was to understand each provider’s experience and capabilities, while also generating insight on industry trends within transition management. A total of 63 asset owners and six service providers responded 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 information on each vendor’s business. This includes, but is not limited to, information about the main reasons for conducting transitions, if the asset owners have a panel of approved transition management providers and the expectation for the frequency of portfolio transitions for 2023.

To participate in the 2024 Transition Management Survey or to receive information on licensing of associated data/content, please email surveys@issmediasolutions.com.
—Garrett Cox