| Skandia UK and other funds seek transition specialists |
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| 12/11/2006 | |
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Skandia UK, the multi-manager powerhouse with £31 billion in assets, including pension, investment and life insurance funds, is close to implementing a panel of transition management experts, bfinance has learned. The panel will consist of a number of sell-side firms to help Skandia's transition from a legacy portfolio to a target one, said Simon Brooks, head of portfolio implementation. Skandia's investment management business, SIML, is regarded as the fastest-growing multi-manager in the UK. The move comes at a time when a growing number of funds are enlisting the services of transition managers to restructure their portfolios, driven in part by their appetite for alternatives, such as hedge funds and emerging markets. JP Morgan announced recently that it completed a £150 million pound equity restructuring for the Lincolnshire County Council Pension Fund. As part of the restructuring, the fund hired Alliance Bernstein to manage £100 million in equities and Threadneedle to manage £50 million. "Smaller pension funds, such as local government authorities, do not have the time or resources to manage the various aspects of a portfolio during a transition," says Tim Wilkinson, Global Head of Citigroup Transition Management. His firm also oversees transitions for larger funds, some of which actually have their own trading desks. "Restructurings can range from £50 million to £15 billion," he says. "The trend this year has been towards higher yielding, higher alpha investments." Brooks notes that Skandia has a particularly unique approach to the markets—it does not take bets on them. Rather, it selects asset managers in specialised fields. One of the aims of building a transition management panel is to help Skandia "find experts within particular areas," which has put Brooks in contact with emerging markets transition specialists at UBS. That relationship is fairly close to being formalised. The fees in a transition transaction often come with wide spreads. "Different markets have different costs," says Brooks. "Fees could range from 3 basis points to 10 or 15 basis points. What happens if you want to trade the market in Vietnam? That is why my spreads are so wide." In between two things Transition managers also help pension funds re-allocate their portfolio assets because of a change in the projected liabilities in their scheme, necessitating new return objectives. The change may involve trading out of one portfolio of securities and geography into another, which can create risks in market exposure. The industry remains opaque and it is rare for deals to be announced. It is a nascent industry that has been evolving in the last twelve years. The main drivers of the service are clients who want to either preserve or improve performance and contain transition costs by outsourcing operational control of a portfolio. There are also liability-driven drivers, resulting from tax and legal requirements. "We're seeing a broader move to passive and satellite structures incorporating high alpha add ons, and some regional themes," says Paul Marchington, Global Head of the transition group at Lehman Brothers in London. The core-satellite approach is widely deployed in the industry, with trackers being used in the core portion of a portfolio (see related article) to replicate a benchmark and the satellite segment to enhance performance. "There is a globalisation of portfolios, a move away from domestic markets," says Marchington. "In Asia, fixed-income continues to be a key component in portfolio realignments." Singapore, Taiwan and Korea, countries with large pension funds have seen a "significant number of restructuring incidents." One of the transition specialists in the emerging markets is UBS, which Skandia is considering. The firm has seen more inflows into emerging markets as institutions look into alternatives for diversification and out performance. "Our experience has been that pension schemes appear to be allocating more to emerging market managers," says Jody Windmiller, Head of Project Management for European transition services at UBS. "There are a number of reasons why a pension scheme may undertake a transition. It may be precipitated by fund underperformance or by a change in the scheme's asset-liability profile. Emerging markets have been a top performing asset class for the past three years, so it is easy to understand why pension schemes may want to increase their exposure." V.B. |
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