Agency broker and technology provider BNY ConvergEx has launched a clearing solution for small- and medium-sized pension funds that will allow them to take advantage of transition management services.
Small- and medium-sized pension funds often invest in commingled funds rather than separate accounts, because they do not require a global custody account. But the lack of such an account makes it difficult to switch managers neatly and efficiently using transition management.
“The problem arises when pension funds move from one commingled fund manager to another, for example for performance purposes,” Kal Bassily, managing director and global head of BNY ConvergEx’s transition management business, told theTRADEnews.com. “The only way they can move without having a global custody account is to get their redemption in cash, contribute the cash to the new commingled fund manager and get new units in return. That presents a whole set of inefficiencies for migrating assets.”
BNY ConvergEx’s new solution offers smaller fund managers an interim clearing platform that allows them to accept redemption in securities and hold them on the platform without the need for a global custody account. This in turn allows them to employ a transition manager. “We put smaller fund managers on the same footing as a pension fund with a global custody account without them having to set up a global custody account in their name,” said Bassily.
The ability to take advantage of transition management has proved a big draw for small-to-medium-sized pension funds, according to Bassily “We have been offering the solution now to our clients for a couple of weeks and it has had a very good reception,” he said.
The platform is available to pension funds globally and across asset classes. The structure of the offering also means that the fund does not rescind its ownership of the assets being transferred at any time. “When we discussed the solution with consultants and clients, we found that no pension fund wants to cede the ownership of the assets, even on an interim basis,” said Bassily.