Budget transitions a myth
A new research report into the burgeoning portfolio transition management business has uncovered a surprisingly large gap between the costs quoted for transitioning funds from one manager to another, and the actual costs of the process.
The study, conducted by theFrank Russell Company, found the average performance slippage during transitions was 99 basis points over and above the cost estimate provided to clients by transition managers.
Russell Investment Management’s client executive Rob Ciro says the goal of the exercise was to see if low cost estimates of transition management actually resulted in low cost transitions.
“Clearly they do not, and clients generally were unaware that such a substantial gap exists,” Ciro says.
The study looked at transition events initiated by more than 100 superannuation funds based in Australia, the United States, Canada, the UK and continental Europe between the thrid quarter of 1999 and the firsttquarter of 2001.
“This [study] suggests that typical cost estimates have little relationship to the results that superannuation fund trustees and investment managers are likely to achieve,” Ciro says.
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