The transition management industry could be poised for a shakeout.
With as many as 40 firms — including custodial banks, index-fund managers and investment banks — providing some form of transition management services to pension funds, many industry experts predict a majority aren't likely to be around in five years unless they can achieve and maintain a critical mass of clients.
How that happens — whether by consolidation among smaller players or some providers opting to exit the business entirely — is unclear. But they agree that only a handful of players controlling large portions of the market will survive.
In a lot of ways, that is already the case, with established firms such as custodial bank State Street Corp., Boston; index-fund manager Russell Investment Services Inc., Tacoma, Wash.; and investment bank Goldman, Sachs & Co. Inc., New York, accounting for a significant chunk of the transition management space.
Now, however, the prospect of fat margins from transition management services has led to a number of new entrants, particularly from the investment banking community. The result is a crowded field in which multiple providers are going after a limited number of transition-management jobs.
"There are too many players," said Paul Harte, vice president at pension consulting firm Strategic Investment Solutions Inc., San Francisco.