Transition management has been through a tough time, with several of the global players pulling out of the business in the past 12 months. Super funds shouldn’t worry, though. The survivors are actually expanding their offerings, according to veteran Michael Jackett-Simpson.
Increased transparency has become a generic theme in investment management but it has a specific meaning for the world of transition management (TM), where opacity has long been a problem. You’d have to think that any funds management service which requires accessing ‘dark pools’ will be a focus in a more transparent world.
Michael Jackett-Simpson, who has been with the Citi transitions team in Melbourne for more than 10 years, mostly as head of the business in Australia, says increased regulation has affected all parts of funds management and TM is no different.
“Regulators have been pushing for participants to prove best execution. They are requiring more detail about transitions,” he says. “Increased transparency is a big theme.”
He believes that the ‘broker model’ of TM, rather than the ‘agency model’, is in the box seat for transparency.
Jackett-Simpson was speaking after Citi had scooped the pool in the annual Global Investor Awards from TM. The firm won each of the main global and regional categories against runners-up State Street and Nomura.
Australian TM providers cover both models, with brokers, custodians, asset managers and asset consultants still participating in the market. In the past year, however, four players have pulled out: brokers Credit Suisse, custodians and brokers JP Morgan and BNY Mellon, and agency Convergex, which is also owned by BNY Mellon.
Jackett-Simpson says: “Transparency plays well to the broker model because we’re not relying on a middle-man for any information. We can provide granular information, like time stamps and other data, more quickly.”
He says regulations were one reason some players have pulled out. They did not have sufficient business to justify the rising costs associated with increased regulation. Some well-publicised law suits, too, may have been a contributing factor. Convergex, for instance, this year reached a settlement with the SEC in the US over a large number of allegedly fraudulent trades involving funneling activity through offshore domiciles.
TM managers such as Citi are now taking a more holistic approach to their client relationships. Jackett-Simpson says: “Our clients are now talking to us about being their outsourced execution desk. For example, they’re wanting us to institute and manage hedging and tail-risk programs. The conversation is a lot broader than it used to be.”
This fits well within another broad theme among pension fund boards to delegate more responsibilities to management and outsource partners.
“We’ve seen the build-out of super funds’ internal teams,” he says. “This will continue, and probably accelerate with more fund mergers on the cards.”
Last year, business management was a key theme for super funds, versus investment management, because of the regulatory changes, such as introduction of MySuper, and this theme is unlikely to disappear anytime soon.
After-tax investing is another theme of relevance to TM managers to consider prior to their transactions.