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Transition management is a service provided by broker/dealers, custodian banks and consultants for institutional investors and fund managers that need to shift assets from one portfolio or third-party provider to another. They use their global networks to help clients avoid having to cash out of one portfolio and buy another from scratch, an exercise that involves high transaction costs and the dangers of being out of the market for periods that can take weeks.
But the industry, which emerged in the United States in the 1970s and spread to Europe in the 1980s and Asia more recently, has been plagued by differences in models that have made it difficult for clients to compare providers.
An early start was made by Russell Investment Group in the US, which introduced the T-Standard, which defined the way it measured æimplementation shortfallÆ, the gap between the two portfolios and the time it would take to make it up. It was a way to measure the cost of a transition after the fact, but rivals were unwilling to adhere to RussellÆs definitions.
Following two years of wrangling, however, this week British practitioners from across the spectrum of providers have recently drafted a T-Charter, which was more ambitious. This code provides for more consistency in reporting, pre-hedging estimates and minimum standards of best practice (to avoid conflicts of interest, as well as to lay out standards for fees and dealing practices), as well as taking the lead in post-trade analytics as envisaged by RussellÆs T-Standard.
Although the T-Charter was specifically written for the UK market, with references to the regulatory environment under BritainÆs Financial Services Authority, Deutsche believes its commitment to best practices can be universal, and it now intends to follow the T-Charter when doing business in Asia, says Tom Clapham, Hong Kong-based director of transition management for Asia ex-Japan.
ôClients benefit from a consistent approach to generate pre-trade analytics that estimate the costs of a transition,ö he says, adding that Deutsche considers itself a top-three player in the region.
Investment consultants are keen to see the T-Charter expanded to the region. Mercer Investment Group says it played a role in the negotiations. The agreed standards should be taken up globally, says Lounarda David, Asia Pacific director of Mercer Sentinel Group, the firmÆs investment operations consulting team.
According to Rick Di Mascio, CEO of Inalytics in London and the chairman of the working group to draft the T-Charter, the following firms have signed it or intend to sign it:
ABN Amro, Bank of New York, Barclays Global Investors, BlackRock, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Lehman Brothers, Mellon, Merrill Lynch, Morgan Stanley, Northern Trust, Russell, State Street, UBS.
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