The Asia heads of transition management at Deutsche Bank and JP Morgan, Tom Clapham and Duncan Klein, have exited in a fresh round of cuts in the region, AsianInvestor can reveal.
Both are understood to have been laid off in the past few weeks and are not expected to be replaced, reflecting reduced TM activity in very tough markets. Both banks confirmed the departures, but declined to comment further.
JP Morgan is now said to be running its Asia-Pacific TM business out of Sydney under Patrick Fanning, who joined last September from Citi. It has also added one to its TM team in Australia recently, but declined to provide a name. Sources say the firm is reviewing its TM business and how it offers it to clients in Asia.
Klein is a career JP Morgan executive, having been with the bank for more than 20 years in areas such as fixed income e-commerce sales and fixed income trading.
Meanwhile, Deutsche is believed to be spreading Clapham’s responsibilities among other members of the equities team in Hong Kong. David Foodey, who runs the Australia TM business out of Sydney, is presumably now the most senior member of the team in Asia-Pacific, but the bank could not confirm that by press time.
Clapham had worked for Deutsche for almost six years, having joined in October 2006, before which he spent six years in TM consulting at Mercer.
These two exits come against a backdrop of departures and reduced activity in the Asia-Pacific TM business (including Australia) over the past year or so.
David Gagnon left BlackRock and Richard Surrency exited Morgan Stanley earlier this year; both were Asia-Pacific TM heads. Gagnon was succeeded by his former deputy, Anthony Swift, but Surrency was not replaced.
Hence Morgan Stanley no longer has a dedicated TM sales function in Asia, nor in the US following Jay Doherty’s move back to State Street earlier this year. The broker-dealer is thought to have a global sales effort run out of London, but it declined to say who runs that business.
Surrency has since become Hong Kong-based regional co-head of UK firm Legal & General Investment Management alongside Alan Flynn, formerly of Mercer, as reported by AsianInvestor last month.
Moreover, US-based BNY Mellon wants to appoint a TM head in Asia but is holding off as a result of the difficult financial environment and low transaction volumes globally.
Hence the group has no immediate plans to increase headcount, but does plan to expand its TM offering in Asia at some point, says a spokeswoman. BNY Mellon's global TM head, Mark Keleher, will continue to oversee the region from San Francisco for the time-being.
One executive familiar with Asia’s TM industry says: “Fundamentally investment banks are getting out of TM because it’s not a flow business, and in these market conditions, flow is the name of the game. At all the major IBs now, if you can’t demonstrate flow today and tomorrow, you’re likely out the door.
“It’s an unfortunate business,” he adds, “as the IBs have withdrawn from a lot of strategic business lines – structured products, TM, quant, etcetera – and lost access to a pipeline of innovation that these teams provided.”
Looking ahead, a “centralised facility model” such as that employed by firms like Citi and Goldman Sachs in Australia is likely the most suitable one, argues the executive. This is an approach whereby providers outsource global TM events through a central facility, he adds.
Others make similar points. Tom Wyse, Asia-Pacific head of TM at Credit Suisse in Sydney, estimates that transition activity – even in Australia, a much more active market than Asia for TM – is 20-30% down in the past year or two.
“[The cutting of TM teams] is probably down to a combination of the Asian TM business not growing as quickly as many would have anticipated and transition activity being down due to macroeconomic factors,” he adds.
“Liquidity is still very tight, flows are down, commissions are down, everything’s down,” says Wyse. “It’s not a conducive environment for switching large amounts of money between asset managers, so this is hardly surprising.”
A further issue in recent years has been that of lawsuits being brought by UK and US pension plans for alleged overcharging for FX trades during portfolio transitions. Institutional investors in Asia say they are aware of these cases and are keeping a closer eye on transaction costs as a result.
To top it all, incoming regulation could make the situation worse for the TM industry, as noted by AsianInvestor. Banks' reduced ability to do principal trades as a result of the Volcker Rule may hit TM services, and the planned Basel IV capital-adequacy regime is also likely to harm firms' ability to warehouse risk.