Bank of Korea has put in place a formal panel of transition managers that it can call upon to restructure, liquidate or otherwise change its investment portfolios, reflecting a growing trend among Asian asset owners.
Sources say the decision was made in March and that BlackRock, JP Morgan and Russell Investments were the firms chosen. AsianInvestor could not ascertain any other details, such as the duration of the TM mandate.
The central bank joins its biggest domestic institutional peers, Korea Investment Corporation and the National Pension Service (NPS) in going down this route.
BoK would not comment apart from to confirm that it had chosen several TM providers this year. The providers in question also declined to comment, with market observers noting that they will have signed strict confidentiality clauses.
The practice among large, sophisticated Asian institutions to set up formal panels of transition managers continues to gain traction in Asia, say TM providers. Drivers include a growing focus among investors on cost transparency and a greater awareness of different TM models and their pros and cons, from custodian to broker-dealer to full agency.
“One of the big things we are being asked now is whether we are reviewing foreign-exchange execution, what's in the contract about FX, what is best execution etcetera,” says Nick McDonald, Asia head of transition management at Mercer in Hong Kong.
“We’re suggesting that our clients review their FX executions to ensure their fund managers are appropriately managing them,” he adds. “And to date we have seen poor execution in some areas and lack of transparency.”
There’s an increasing rigour and sophistication in the TM selection process in Asia, agrees Simon Hutchinson, London-based head of TM for Emea and Asia-Pacific at Northern Trust. As a result, he expects to see more requests from clients to have transition performance independently analysed post-trade, particularly for bigger transitions.
The largest Korean asset owners are sophisticated investors, particularly with regard to their Asian peers, and were relatively early users of TM. The $300 billion NPS, for example, put in place its first formal panel about a year ago, comprising BlackRock, Credit Suisse and Nomura, as first reported by AsianInvestor, in April last year.
Transition management as a service only started to gain traction in the region less than five years ago. Before that, institutional investors would likely have left funding, liquidation or restructuring of portfolios to external asset managers or custodians.
* See the Asset Services supplement to the upcoming (May) issue of AsianInvestor for a feature on the state of the transition management business in Asia.