When pension funds and investment managers change portfolio strategies, the visible costs are often just the tip of the iceberg. Poor execution during these transitions can erode significant value, yet many South African institutions still underestimate the risks involved and the value of partnering with an experienced transition manager.
Hiring a transition manager is the best way to tackle the complex process of moving from one investment strategy to another. “A transition manager is hired to efficiently manage the process of moving a portfolio from the legacy environment into the new target environment while managing the risks involved,” says Adam Bateman, Head of Business Development and Strategic Partnerships, Investor Services at Standard Bank Corporate and Investment Banking (CIB).
Standard Bank’s transition management capability is supported by a five-year alliance with Northern Trust initiated in early 2021, combining local market expertise with global best practice. “We focus on the strengths we have here – understanding the client base, the local markets, and the liquidity pools when it comes to executing,” says Bateman. “Northern Trust brings nearly 40 years of transition management experience and intellectual capital around pre-trade reporting, post-trade reporting, and project management.”
David McPhillips, Business Development Manager for Portfolio Solutions at Northern Trust, explains that effective transition management rests on the three critical pillars of project management, reporting and execution. “Our job as a transition manager on the front end is to optimise these pillars, quantify the risks and build a strategy to manage them,” he says. “You want to work with a transition manager that has the technology and expertise to support transitions – a whole team’s got to be behind it.”
Kagiso Matlala, Equity Sales Trader at Standard Bank highlights that the consequences of poor transition execution extend far beyond visible trading costs, with implicit expenses typically dwarfing explicit fees. “From a trading point of view, you’re trying to manage market impact versus opportunity cost for the fund,” he explains. “If you don’t get that right, by the end of that transition, you could be lagging your peers by a long way.”
Poorly executed trades create a ripple effect across entire portfolios. “If you’re a holder of a certain asset and it’s badly traded in the market, the impact isn’t just on the price of what you’ve sold; your holdings as a portfolio manager are also losing value,” adds Matlala.
Bateman also points to transparency as a cornerstone of effective transition management. “The main value that an effective transition manager adds is transparency,” he says. “They do that by helping the portfolio manager understand all the potential risks and costs – whether those be explicit costs like trading commission or implicit costs in how the market is impacted.”
In South Africa’s relatively illiquid markets, information leakage poses particular challenges. “You want to be as discreet as possible, especially when you’re dealing with very illiquid assets,” says Matlala. “The fewer people in the room, the better, especially from a trading point of view.”
He also notes the importance of managing the entire chain, including settlement. “It doesn’t stop at the trade. If the back-end processes aren’t aligned, clients can face overdraft costs or settlement delays. We cover all of that to ensure the handover is clean.”
On fees, Bateman explains that Standard Bank doesn’t charge a separate project fee for transition management. “Our fees are built into the trading commission, which the client would incur in any event. In most cases, partnering with transition management experts ends up costing less than if the client managed the transaction themselves.”
Although transition management is not new in South Africa, Matlala and Bateman believe it remains underutilised because transition execution is often seen as routine administration rather than a specialist function. They argue that, when performance is tight, the potential to incur higher than necessary costs matter, so transitions should be approached with the same discipline and care as any other investment decision.
“As funds face increased complexity, more offshore exposure, and evolving regulations, the need for expert-led transitions is only going to grow. Our role is to make those changes work operationally. It’s not just about moving assets – it’s about leveraging the knowledge, experience, and expertise to preserve value,” concludes Bateman.
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