UK - The transition management industry has "pitifully weak" governance structures and is deliberately structured to be opaque, investment advisory Inalytics has claimed.
Speaking at a roundtable with journalists yesterday, director Graham Dixon, however, was keen to stress that the largest proportion of the industry should be seen in a positive light, but that institutional clients should nonetheless be aware of the hidden fees potentially involved in any transactions.
The warning comes after a dozen of New York City's pension funds filed a $2bn (€1.5bn) lawsuit against BNY Mellon for allegedly overcharging on foreign exchange transactions.
Dixon predicted that the issues of transparency and governance would come to a head in 2012, saying that the next year would either see the industry dealing with the fallout of these issues, or coming together with other organisations - such as the UK's Financial Services Authority - to defuse the situation.
He was highly critical of the current arrangement, whereby managers set their own benchmark, measuring their own performance.
He also noted the problematic issue of remuneration - stating that fees often had an explicitly disclosed level, as well as a hidden one.
"To be honest, the providers deliberately structure their business so there is that hidden part," Dixon said, adding that this was one of the facts of life of transition management.
He said he could not recall ever seeing a negative report on a transition mandate, saying that spin would be employed to present any outcome in the most positive light possible.
"Would you let your portfolio manager manage your portfolio if he didn't have a track record? Would you let him set the benchmark?" Dixon asked.
"You would hope you would have a structure whereby the transition manager is going to do the right thing all the time.
"But the structure we have got is to maybe keep them honest, to make sure things are all right. The onus passes to the client to do the right checking and have the right advisers - in order to make sure the right thing has happened."
An alternative to the current situation was being put forward in the T-charter, urging the disclosure of fees to better enable a fair comparison of services and their costs.
Inalytics was last month appointed to advise the £28bn (€32.5bn) Royal Mail Pension Plan on the sale of its assets, with the Department for Business, Innovation and Skills awaiting permission under state aid laws to assume the £32.7bn in liabilities.
Dixon said the procurement process for Royal Mail's transition managers was now underway, allowing the asset sale to proceed as soon as all legal hurdles had been cleared.
The UK postal service's chief executive Moya Greene last month said relieving the company of its historic pension liabilities was both "essential" and "vital" for the company to sell as much as 90% of shares to investors under government privatisation plans.