What types of securities were transitioned?
n 2016 n 2015
US equities 84% 79% 6% 9%
Non-US equities 62% 70% -12% -10%
Fixed income 25% 35% -29% -1%
Foreign exchange 18% 20% -9% 6%
Other 1% 1% 0% -85%
* Only four years of data are available.
In a year that saw former transition management executives arrested
and charged with defrauding institutional investor clients, it is
perhaps no surprise that asset owners still do not completely trust this
particular industry. “It would be imprudent for a fiduciary to simply
assume malpractice isn’t going to happen,” transition management
consultant Steven Glass, president and CEO of Zeno Consulting,
told CIO in September.
As Glass pointed out, “transitions are often very complicated
with lots of moving parts, so there will be instances where errors
will occur, even with everybody acting in good faith.” With survey
respondents conducting an average of nearly five transitions this
year—of securities consisting largely of equities—due diligence was
important as ever. The trend of bringing on an external advisor to
assist with transitions continued, with 43% reporting the use of a
consultant this year—up from 34% in 2015.
And while transition management agreements were not as
widespread as last year—when 90% of asset owners said they always
required such a covenant—the contracts were still used at least some
of the time by 95% of survey respondents. Compensation arrangements, meanwhile, continued to shift: Commission on agency trades
remained the most popular payment model, used by 68% of survey
respondents, but use of flat fee agreements was up 17% from last year,
with 16% of investors typically making a flat payment.
The transition management industry’s reputation has improved
since 2012, when, following a year of scandal, allocators rated their
level of trust in providers as a 2. 9 out of 5. This year, the majority of
respondents said they “mostly” trusted the industry, and top providers
like Macquarie and Pavilion earned high marks for client satisfaction.
Transition Management Survey
Do you trust the transition management industry as a whole?
2016 2015 1-YR CHANGE 5-YR CHANGE
l 5-Trust completely 3% 6% -42% 371%
l 4-Mostly trust 56% 53% 7% 139%
l 3-Neutral 33% 35% -5% -34%
l 2-Little trust 5% 6% -14% -76%
l 1-No trust 3% 1% 200% -56%
Average 3.53 3.56 -1% 21%