Transition Management Services

Introduction to Mellon Transition Management

• Transition management defined
• What types of events necessitate transition?
• Why use a transition manager?
• How does transition management work?

Transition management defined

Transition management is a systematic, controlled process that utilizes all available sources of liquidity to simultaneously minimize the total cost while managing the overall risk of the transition. The transition manager should:

• Complete the process of moving a portfolio from one set of investments to a new set in an efficient manner
• Preserve asset value by managing trading costs and risks
• Help reduce or eliminate any inefficiencies in executing the investment decisions of the plan
• Produce fully attributable costs

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What types of events necessitate transition?

A transition can be as simple as liquidating a portfolio to cash or as complex as a comprehensive plan restructuring. Transitions occur as a result of any of the following:

• Shifts in Asset Allocation: e.g., from fixed income to equity
• Changes in Investment Universe: e.g., from S&P to EAFE
• Changes in Investment Style: e.g., from active to passive
• Changes in Investment Manager: e.g., due to underperformance
• Fund Flows: e.g., to manage liquidations or new fundings
• Merger of Funds: e.g., due to an acquisition
• Merger of Fund Managers: e.g., to consolidate the plan

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Why use a transition manager?

Quite simply, it can be expensive to transition assets!

A transition manager can:

• Reduce market impact
• Provide access to liquidity
• Minimize commissions
• Maintain appropriate levels of market exposure throughout the transition

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How does transition management work?

A successful transition minimizes the total cost of reallocating assets by utilizing multiple sources of liquidity in a systematic and controlled fashion. The disciplined use of internal and external crossing, as well as agency and principal trading, minimizes the combined cost of market impact and opportunity costs. Furthermore, the client's particular constraints and objectives can be satisfied with a customized trading solution. Transition management can utilize:

• Sophisticated analytical tools which model the risk profiles of the legacy and target portfolios
• Internal and external crossing mechanisms to reduce commissions and market impact
• Derivatives to ensure appropriate and continuous market exposure or to hedge portfolio risk
• Rigorous quantitative analytical processes to determine optimal trading strategies
• Security level detailed cost analysis throughout the transition including projected pre-trade transition costs, real-time risk management, and exhaustive post-trade cost attribution

For more information, or to determine whether transition management is right for you, contact: