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Transition managers are now charged with 45 percent of all mandates to mitigate risks associated with moving portfolios, TABB Group reports.
By Cory Levine, June 20 2008, 1300 hrs
As the markets grow increasingly complex and risk-aware, the primary focus of transition management has shifted from operations to risk management, and the preservation of the value of clients' assets is the most important aspect of a transition, new research from TABB Group suggests.
A recent report from the Westborough, Mass.-based research and advisory firm reveals a burgeoning niche in the transition management industry, as transition managers are now charged with 45 percent of all mandates to mitigate the risks associated with moving portfolios, according to TABB Group.
Based on interviews with 15 U.S.-, Canada- and U.K.-based transition management industry participants, TABB Group says the risks involved in portfolio transition are likely to increase as the underlying portfolios become increasingly complex. The report defines transitions as the movement of portfolio assets arising from changes in investment manager, asset allocation, investment style or large-fund flows.
According to TABB Group, transition can open a portfolio to considerable investment risk, as unwanted exposure to various securities may occur during the transaction. Further, such activity can cause trading risk, as such a large movement of assets may have a negative impact on cost that occurs simply by market participation. Operational risk also must be considered, as reconciliation errors, compliance failures, valuation errors and system failure can all impact the value of a transitioning portfolio, the firm adds.
The global market landscape is in the midst of considerable change as new exchanges, dark pools and crossing networks seek to establish themselves, TABB Group notes. Asset owners and transition managers alike will have to be on top of this change and perpetually evaluate the available tools and strategies to effectively preserve asset value.
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