Robert McCarthy, president of investment consultant Kanon Bloch Carre, Boston, said some pension funds need transition management because executives "feel there's a liability and they need to get out now." He said the decision to move assets can be more difficult when performance is not an issue.
Mark Keleher, president of Mellon Transition Management Services, San Francisco, said academic estimates suggest it costs as much as 2% to shift assets, so moving a $500 million portfolio, for example, could cost up to $10 million.
"That's a tremendous amount of money to lose just in transition costs and opportunity costs," he said. "From our point of view, the decision to use a transition manager really isn't related to why you might be leaving a money manager, but how do you best preserve asset value. … The why of a transition really is less important than the how."
Even before the mutual fund problems broke, 2003 year was already shaping up to be a banner year for transition management, with some estimates putting asset transfers at $2 trillion, up from $1.3 trillion in 2002.
He added that the performance of capital markets over the last several years helped, as plan sponsors looked to gain every bit of performance they could.
"I don't think there's any question that when the market's going up 20%, 30% a year that people became somewhat lackadaisical about paying attention to every last basis point," he said. "I'm quite sure that 22% to 23% (return) on an annualized basis is the same number, but 4% to 5% is not the same number."
Michael Plunkett, co-head of the brokerage unit at Instinet Group Inc., a New York broker and electronic trading firm, said Instinet has handled about 150 transitions in the last 12 months and added that the current mutual fund situation could continue to drive business to transition managers.
"There's been a pickup in the recent past, but I don't want to say it's definitely related" to the mutual fund scandal, he said. "I think it's beginning to occur and we're likely to see more moving forward but if I were some of the plans, I'd probably wait to see how it plays out.
"It's still a little early in the game yet."