Fewer providers are offering transition management services, reflecting changes in the U.S. defined benefit plan market that make it tougher to make money on the business.
The latest to exit the business, Bank of New York Mellon Corp., shocked many industry observers because its transition management unit was in an expansion mode less than a year earlier.
Executives interviewed for this story said the unit's demise was the most prominent example of how changes in asset owners' selection processes and the cyclical nature of transitions have made what had been an established business much more competitive, costly and tenuous.
The BNY Mellon announcement on March 12 that it would, over the next few months, shutter the San Francisco-based unit was the fourth by a transition manager since May 2013. Credit Suisse Group, J.P. Morgan Chase & Co. and ConvergEx Group last year announced they would close some or all of their transition management operations.
“Transition management is not a high-margin business and it's not really going anywhere,” said an industry source who asked not to be identified. “There are higher-margin asset servicing businesses, like custody and securities lending, on which to focus ...
“Eventually, you have to consider whether transition management is diluting your business. That's probably what BNY Mellon did. How much does it cost BNY Mellon to cut or transfer 35 heads in a company that size, vs. continuing the business?” the source asked.
BNY Mellon's action is part of a broader trend, said Richard Prager, managing director and head of BlackRock Inc.'s trading and liquidity strategies group in New York. “The larger picture isn't transition management, but what's going on in the overall (finance) business ... What you're seeing is firms focusing on their core businesses where they have scale and competitive advantage.” BlackRock's $447.8 billion in transitions for the year ended Feb. 28, was above its average of $350.5 billion annually since the end of 2009.