The history of transition management at the Bank of New York goes back thirty years. From an operational point of view the bank has always been involved in transition management, from prior to the service being named when it was simply known as asset switching. We were involved with our custody clients helping them move their assets from one portfolio to another, with issues such as settlement, operations, and opening up accounts. This was the precursor to transition management. As we have grown the BNY Securities Group business through acquisitions there has been the addition of capabilities on the execution side. This infrastructure was being used by other transition managers to execute transition trading and that still continues today.
The decision was taken in 2000 to formalise and 'productise' a transition management service. Professionals were brought in from the custody business, the execution and clearing business that had been involved in portfolio trading, strategy or transition trading within the group. We also added some capabilities from BNY Asset Management in the US that had transition experience.
Was this service initially marketed to US clients?
It was marketed to clients in North America. However, from the start the asset mix was international and in both the equity and fixed income asset classes. For example, the clients were based in North America but they could have Asian portfolios, emerging market portfolios, global fixed income portfolios, etc. Initially the majority of those clients were custody clients of the Bank of New York and it was a natural value-add to assist in the transition. The client has a level of comfort in taking an extended service rather than involving a third-party.
What sort of non-custody clients started using the service after it evolved?
The business began with clients that were mainly pension funds. They were the first buyers of this service and that has now quickly evolved globally to any institutional asset owner, which could be a government, a central bank, a charity, a church, an insurance company or a multi-manager. Nowadays, the scope of clients really extends to any institutional asset owner that is mandating an investment manager to manage a portfolio.
What markets did you tap after the US for your global transition management business?
In early 2003 it was time to grow the business outside of the US and I took responsibility for launching the product outside of the US. The UK was the next most obvious place to start with the bankÆs custody client base. The Bank of New York has a high market share of pension assets in the UK under its custody, and it grew from this client base and then very quickly went into markets like Belgium, Austria, the Netherlands and Scandinavia, where the pension markets are significant. What was different in the European business was that from the start we were talking to financial institutions as well as pension funds.
When did Asia enter into the picture?
The Middle East and South Africa came after Europe and the next logical step was Asia and Australia. Although we started out in Australia roughly a year ago, in the last eight months weÆve rolled out in Asia.
What is the client mix in Asia and are you seeing a lot of demand from pension funds and insurance companies for transition management services?
Absolutely, but in this region there is a significant movement in the opening up of markets and international investment is growing. WeÆre seeing a lot of institutions in Asia looking to invest outside of their own borders for the first time and investing portfolios via external investment managers. There are different types of institutions and they are not necessarily custody clients of the Bank of New York.
Is the service and product you have offer to clients in Asia different to clients in North America and Europe?
The service and product mix is truly a global product and doesnÆt change, but what does change is the location of the client, the investment manager and the asset mix. We have a tried and tested implementation plan for a transition. We carry out transitions in both local-only securities portfolios as well as multi-currency ones in many markets around the world. So the actual programme of events in a transition does not differ that much between Europe and Asia. In many cases, it is the same investment manager and the same securities that we have seen before. We have been trading in securities in Asia for a great number of years and every week we are trading transitions with securities from this part of the world. What is different now is the location of the client.
How receptive are investors in Asia to transition management and what is their level of experience with the service?
It varies market by market and this is as true for Asia just as it is for other parts of the world. Some markets, like Australia, are very aware of the benefits of transition management, and there the market is mature and there are lots of providers. It is almost unheard of in Australia that a pension fund would carry out a transition without a transition manager. At the other end of the scale in countries like Malaysia and China for example, it is an educational and consultative experience.
What we are also finding in Asia is that there are markets that are in the middle of this spectrum also. Markets like Hong Kong and Singapore have more familiarity where some investors have used transition managers and they maybe understand the model theyÆve been exposed to, but they may not understand the different options in providers and potential pitfalls. This variance by market - of acceptance - is similar to what we see in European markets.
What is your competition in Asia, are more custody banks and brokers entering this space?
WeÆve been speaking to clients here and theyÆve been saying that they have been receiving more calls from transition managers. It is a definitely a part of the world that is being educated on transition management. Yes, both custodians and brokers. WeÆre also seeing some consultants and index managers. This is the same the world over. Some of the names are global and some of the names are locals, but weÆre finding the same four categories that are the providers of transition management.
WhatÆs the strategy to grow the business in Asia?
WeÆll employ a similar strategy as weÆve done in Europe. My belief is that this is not a product that you can simply sell to a client. Transition management is an event-driven industry and the way that we will grow the business is extending relationships that the Bank of New York already has as well as talking to other institutions. Ours is a consultative and educational process to make the industry aware in Asia that there are cost savings to be had at a time when any basis points that can be saved is of value.
WhatÆs happening in Australia?
In Australia and across Asia ex-Japan weÆve got a huge spectrum of experience with not only transition management but also with using external investment managers. In Australia it is a matter of building our profile and demonstrating that there is an alternative in our agency-owned platform. The fact that we own the entire infrastructure and we donÆt outsource anything gives us unique control over costs and risks.