When a decision is made to change external investment managers, a number of governance issues are considered in the transfer. These include information requirements related to the change, consideration of fees or surrender penalties, and communication to those impacted upon by the change, including custodians, members and accountants. While transitioning assets between arrangements the risks associated with the actions are identified and managed appropriately and, at the same time, the institution also seeks to minimize costs where possible.
Guideline code
INVEST_03900
Mechanism
Mechanism
- The management or investment committee should consider whether there is sufficient internal knowledge and expertise, in the form of a dedicated transition team or otherwise, to conduct each transition exercise.
- The management or investment committee should consider whether an external transition manager is likely to add value and, therefore, whether one should be considered.
- The management, investment committee or internal transition team should consider which different methods of transfer could be used in order to reduce risk and reduce costs, compromising on each where appropriate.
- The management, investment committee or internal transition team should ensure that there is adequate communication and consultation among the necessary parties involved throughout the transition process.
- A suitable project plan should be agreed by each party involved in the transition process, thereby establishing accountability at each stage of the process.
- Sufficient resource and expertise should be dedicated to overseeing and monitoring the transition process, including the monitoring of external transition managers where appointed.
- Where the board, management or investment committee lacks sufficient resource, expertise or governance budget to undertake fully informed transition management, the board, or the management or investment committee with board authorization, should seek expert advice or appoint external professionals to carry out these functions.
- Those responsible for managing the transfer should consider the information requirements related to the transfer. Those responsible for the transfer should set out a list of these requirements and ensure that, before and during the process, this information is available and secured.
- The transition team or those responsible for managing the transfer should set out and follow a project plan to ensure that the objectives are met. A timeline should be agreed between all parties and take into account a number of factors:
- Whether assets are held on a segregated or pooled basis;
- Whether assets can be transferred in specie;
- How frequently pooled funds deal;
- When pooled funds are priced;
- The base currency of the pooled funds and whether foreign currency exchanges are required;
- The settlement period for both stock and cash;
- Whether cash can be pre-invested prior to receipt to reduce out-of-market exposure;
- What instruction is required to make the transition (with deadlines for receipt);
- What costs are associated with the transition;
- If segregated portfolios exist, whether there are any illiquid assets held in the portfolio and, if so, how much of the portfolio is expected to be sold over a defined number of days.
- It is important that the process is properly monitored. This will include checks as to whether instructions have been received by each party, all actions have been completed according to the agreed timeline and settlement of assets has taken place as planned.
- When the process of transition has been completed, a final check on whether the process has taken place as planned is also required. This will determine whether all assets have been transferred as expected; the final cost of transitioning assets; and whether the final cost is close to the pre-transition estimates and, if not, the reasons for any discrepancies. This analysis will assist in future transfers.
Structure
Structure
- People with the necessary knowledge and expertise should be assigned to transition projects to effectively and efficiently manage the transition process and ensure all issues are considered.
- An appropriate amount of time and resource should be dedicated to exploring different approaches to transitioning assets, with suitable cost–benefit analysis conducted for each approach.
- The use of external expert transition managers should be considered to support the internal resource or transition team.
Title HTML
Guideline 33. Transitioning of assets when there is a change in external investment manager
Type
Guideline_1
Weight
43