Evaluating four portfolio transition strategies
Over the long run, excess performance over benchmark is difficult to achieve in fixed income markets. Squandering alpha with unmanaged transition events can erode hard-earned excess performance and may prevent investors from reaching their investment goals. A comprehensive transition management approach that seeks to minimize performance slippage during these events helps investors to reach their long-term risk and return goals.
This paper discusses four transition management (TM) strategy options (below) and evaluates them using the three drivers of benchmark relative performance: fiduciary oversight, asset allocation and transaction costs.
- Terminated manager liquidates portfolio to cash
- New manager restructures to target portfolio
- Fiduciary TM restructures to treasury basket
- Fiduciary TM restructures to target portfolio