BlackRock’s global transition management business has doubled the amount of fixed income assets it handled as a proportion of its business from 17% to 33% over the past two years.
Lachlan French, global head of transition management at BlackRock, says that this is just the latest shift asset allocations in the 20 years that the bank has been in the business.
For instance, the client base has broadened significantly away from the original transition business of defined benefit pension schemes to include re/insurance companies, wealth managers, charities, sovereign wealth funds and defined contribution pension scheme.
“The range of different asset classes have also expanded greatly and nowadays we transition more fixed income, emerging market and complex multi-asset portfolios,” he said. “The level of service, transparency and the speed of implementation have also progressed significantly.”
He noted that certain financial market trends were making transitions more challenging. For instance, the requirement for investment banks and market counterparties to de-risk and deleverage has had a negative impact on liquidity and thus made it more difficult to transact significant portfolio restructurings.
“Therefore, we have had to develop enhanced execution strategies including the use of dark pools and algorithms or other methods of obtaining best execution for our clients,” he said. “An important aspect for clients is our ability to trade with a broader range of counterparties in order to achieve the best price for them.”
For French, transition management consists of three components: client service, risk management services and execution. “You have to be able to deliver in all three of those areas. Our objective is to provide clients with value for money, greater transparency, increase in the speed to market and excellence in execution and risk management,” he said.
In the 20 years BlackRock has provided transition management services, it has transitioned over £3.5trn of assets.
Recently the firm has continued its relationship with its longest retained client, the £20bn Railways Pension Scheme, and was the transition manager for a complex liability driven investment portfolio in 2012’s landmark restructuring of the Royal Mail Pension Plan. It says it continues to see strong demand from institutional investors.