The Transition Management Checklist: Questions, Considerations, and Success Factors

Transition events are among the most consequential challenges that any institutional investor will face. Whether it's moving into a new market, adopting a new passive or active strategy, rebalancing a portfolio, or adapting to personnel changes, your firm's approach to these often complex processes can have a material impact on costs and returns.

The good news: you don't need to go it alone. By engaging a transition manager, you can leverage their experience and expertise to navigate these events smoothly. Identifying the right provider and working with them to create an optimal strategy for asset reallocation may take time and effort - but that's what it takes to get these processes right.

We're here to help you make those decisions. Below are a few basic questions to ask yourself when facing a transition event and assessing the landscape of managers. While the answers might not provide total clarity, they can inform your evaluation process and serve as a useful jumping-off point for more detailed conversations with the providers in this space.

We look forward to writing about these topics in greater focus over the coming weeks, but for now, let's start with the basics.

Do I need a transition manager?

Not every transition event requires a dedicated transition manager. If the event is relatively minor or your employees possess specific expertise or have handled many transition events in the past, you might find success handling the entire process in-house. However, even seemingly straightforward events can involve a surprising amount of planning, so proceed with caution.

What can I do to prepare my portfolio for a transition event?

Often, a successful transition management event begins before the transition manager has been engaged. As an example, transitions involving illiquid assets that will take days or weeks to liquidate can prolong the process. One logical step could be to have the legacy manager reduce exposure in the highly problematic positions during the days leading up to the transition, while the typical LOIs, conference calls, and pre-trade strategy discussions are occurring. As the manager reduces exposure, it can make initial allocations into liquid investments that have a benchmark similar to the portfolio target. This can shorten the trading timeframe for the transition event and enable a quicker transfer of control to the target manager.

How experienced is my transition manager?

There's a lot that needs to go right to smoothly navigate a transition event. You want a manager that has been there and done that, with an established team, process and consistent results over the course of many years. In addition to trading expertise, the ability to provide an accurate timeline and explain complex processes in detail flow directly from experience.

Can my transition manager handle my specific needs?

Transition events often require deep expertise across a broad range of considerations. Multi-asset portfolios with complicated structures are more common than ever before, as are unique vehicles like 40-Act funds, insurance-based funds, and sub-advised funds. Exposure to emerging markets or complex vehicles like ultra-high-yield bonds create additional considerations. You want to ensure your transition manager is up for your specific challenges, not just a generic provider.

How transparent is my transition manager, and what analytics will be provided?

A good transition manager should feel confident bringing you into their process, demonstrating why their proposed approach makes sense, and explaining the outcomes once the dust settles. Pre-trade, what are the anticipated costs, risks, and market impact? Post-trade, how well can they explain any discrepancies between pre-trade expectations and the actual results? Can they demonstrate a history of tight, consistent spreads across similar types of transitions? Are they willing to get granular with the data, showing what your exposure was during incremental moments in time? Finally, how strong are their reporting capabilities? Are there robust statistical breakdowns and visuals, and is the manager willing to take the time to understand your questions and provide specific answers? It might be hard to find a provider that checks each one of these boxes, but the effort is well worth it in the end.

These are just some foundational considerations in what's always a complicated evaluation and search process. In addition to the ideas laid out above, one overarching consideration is finding a transition management partner you can trust - consultative, unconflicted, and truly invested in your success. That's easier said than done, but when it comes to the complexities of transition management, you should settle for nothing less.

We look forward to sharing more key concepts for transition management success in the weeks ahead. Want to learn more about what we offer at CAPIS? Reach out to us.

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