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Bear Stearns transition chief Gardner boldly predicts that the firm will claim 15 percent of the market in seven years, up from roughly 2 percent now. All told, about 40 firms offer transition services, though for some the business is not a strategic priority.Īmong investment banks, three - Bear Stearns, Credit Suisse and Merrill Lynch - are the most aggressively pursuing transition deals. The leaders, ranked by number of transitions performed, were State Street, Barclays, Russell, Northern Trust Global Investments and Mellon Transition Management Services. According to a 2005 Greenwich Associates survey, no investment bank placed among the top five U.S. Securities firms have a way to go in pursuing this business. Transition managers must be sensitive to changing market liquidity and volatility conditions. Custody and clearing arrangements need to be coordinated. Major transitions can involve thousands of securities moving through multiple markets, time zones and currencies. "Transition managers are seeking this business because liquidity has strategic value," says Paul Sachs, a Mercer Investment Consulting principal who focuses on investment operations. But access to liquidity is as big a lure to firms specializing in transitions - the liquidity that flows to a trading desk, deepening the firm's knowledge of what's going on in the market. Shaffer now co-heads Merrill's global transitions business with London-based Michael Marks, and Stush runs Merrill's North American business.Īlthough transition managers typically earn only a penny or two on every share traded, the huge volume of assets in play can yield substantial commissions. Last year Merrill Lynch hired Deutsche Bank's global head of transition management, Charles Shaffer, as well as its North American transitions chief, William Stush.
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In May 2005, Bear Stearns recruited Michael Gardner, Russell's manager of trading implementations, to run its transition business. In their effort, they're building staff, using the traditional means of any good market-share fight - poaching talent. Now Wall Street firms, such as Bear, Stearns & Co., Credit Suisse and Merrill Lynch & Co., are pushing into the area, looking to boost their paltry market shares by marketing their trading infrastructures, trumpeting the transparency of their practices and fees - and cutting prices. The business of helping them has long been dominated by big custodians, indexers and consulting firms, including Barclays Global Investors, Russell Investment Advisors and State Street Global Advisors. They do so for a variety of reasons: to change or rebalance asset allocations, to revise investment styles or to select new stock pickers. "The process was transparent, and we basically got the transition done in one day at a total cost of $20 million, including commissions and market impact," says Bryant, who had expected to pay closer to $55 million.Įvery year institutional investors like the Louisiana fund shuffle between $2 trillion and $2.5 trillion from one portfolio to another. The investment firm persuaded him that it could trade out of the old positions with efficiency and transparency - and at a very attractive price. After an eight-week search, he chose Credit Suisse Group, a relative newcomer to the business. To move the money quickly, smoothly and cheaply, Bryant set out to hire a specialty firm known as a transition manager.
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The amount involved was substantial: $2.1 billion, or nearly one sixth of the pension plan's total assets. So last October the CIO of the $13.8 billion Teachers' Retirement System of Louisiana decided to replace his six small- and midcap value and growth managers with five so-called smid managers, who would be free to buy small- or midcap stocks, value or growth, as they chose. Dan Bryant was looking to give his portfolio a lift.