Transition Management Services

The Transition Management Process

Pre-Trade
Each client is assigned a portfolio manager and a transition manager at the beginning of the transition. The portfolio manager is responsible for trade program formulation, monitoring of all trading, and analysis of the portfolio pretrade, intra-trade and post-trade. The transition manager is responsible for the coordination of all the legal, trust, custody and brokerage details for the client as well as communication among the client, Mellon Transition Management Services, and the old and new managers.

The first step is reviewing the trade-off between market impact and opportunity costs with the client. Once the client’s needs and goals regarding timing, risk tolerance and benchmarks have been identified, the next step is to identify the assets in the old portfolio that the new manager desires. In-kind assets are transferred to a holding account, where they are monitored for corporate actions and dividends throughout the duration of the transition trade.

A pre-trade analysis is performed on the remainder of the portfolio. The pretrade analysis allows the portfolio manager to develop a trade program that will meet the client’s goals for the transition. The various sources of liquidity for the transition are identified at this point.

The trading program incorporates internal crossing, external crossing and open-market trading. The goal of the trading program will be to minimize the total cost of the transition for the plan sponsor while considering the particular constraints as to timing, benchmark and residual risk.

Trading
Internal crosses are performed using a proprietary crossing system. The internal cross takes advantage of the trading flow generated by our assets under management that are eligible to participate in crossing opportunities. External crosses utilize crossing networks such as ITG’s POSIT. Open-market orders are handled by the trading desk. If futures are being used to equitize cash, they are purchased and sold as necessary.

Daily progress reports are provided to the client on executed values, remaining assets in the portfolio and the relative performance of the pre-trade, actual and benchmark portfolios.

The equity transition trading team is made up of equity portfolio traders and portfolio managers who are experienced in domestic, international and derivative trading. The fixed-income transition trading team consists of professionals experienced in all areas of fixed-income trading. Our state-of-the-art trading systems monitor not only the current pre-trade and executed values of the portfolios but also the risk of the portfolio relative to a benchmark.

Post-Trade
Trade executions are reviewed against the agreed-upon benchmark. Assets are then transitioned to the new managers. A final analysis detailing the trading strategy used in the transition, actual versus expected costs, and execution reports are reviewed with the client.

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