Clients pay five times estimated transition costs
UK – The gap between cost estimates and delivered performance in the growing portfolio transition management business can lead to clients paying up to five time the original cost estimate of the transition, according to a study by Frank Russell.
The research looked at transition events started by more than 100 pension funds in the UK, continental Europe, the US, Canada and Australia and compared the actual transition performance results to the original cost estimate given during the pre-transition phase.
The results, which exclude Russell’s own transition events, reveal that on average there is a performance slippage of 99 basis points, both over and above the original estimate, translating in layman’s terms to five times the cost for an original 25 basis point estimate.
Says Natalie Pilcher, transaction services team client executive at Russell in London: “The goal of the exercise was to see if low cost estimates result in low cost transitions for clients. Clearly they do not, and in our experience, clients are unaware that such a substantial gap exists.”
Russell’s director of transaction services, Adrian Jackson, blames the negative findings on unreasonable cost estimates, incorrect focus and business model disincentive. “Specific business models appear to have distinct transaction patterns that lead to differences in performance,” he says.
In-house research into Russell’s own performance revealed a mean shortfall of –5 basis points and a median of four basis points.