When pension funds and investment managers change how they invest their money, the costs involved are often more complex than they appear. While trading fees and commissions are easy to see, hidden costs can quietly reduce portfolio value if the transition is poorly managed.
Experts say many South African institutions still underestimate the risks involved when moving from one investment strategy to another. As a result, they may lose significant value during the transition process without realising it.
This is where transition managers play a crucial role.
What Is Transition Management?
Transition management is the process of carefully moving a portfolio from one investment setup to another. This can happen when a fund changes asset managers, adjusts its investment strategy, or rebalances its holdings.
Adam Bateman, Head of Business Development and Strategic Partnerships for Investor Services at Standard Bank Corporate and Investment Banking, explains it simply.
“A transition manager is hired to manage the move from the old portfolio to the new one in an efficient way, while controlling risks and costs,” Bateman says.
Without proper planning and execution, transitions can expose funds to market movements, price swings, and unnecessary losses.
Why Poor Execution Can Be Costly
The most obvious costs during a transition are trading fees. However, industry experts warn that the biggest losses usually come from less visible factors.
Kagiso Matlala, an Equity Sales Trader at Standard Bank, says poor execution can have a lasting impact on fund performance.
“When trades are done badly, the fund may fall behind its peers,” he explains. “This can happen because of market impact or missed opportunities during the transition.”
Market impact refers to how large trades can move prices against the investor. Opportunity cost happens when delays or poor timing prevent the fund from getting the best possible price.
Matlala adds that the damage does not stop with a single trade.
“If an asset is traded poorly, it affects not just the price you sell at. It can also reduce the value of similar assets still held in the portfolio,” he says.
Combining Local and Global Expertise
Standard Bank’s transition management service is supported by a long-term partnership with Northern Trust, a global financial services firm. The alliance began in 2021 and brings together local market knowledge and international experience.
Bateman says Standard Bank focuses on understanding South African markets, client needs, and liquidity conditions. Northern Trust contributes decades of experience and advanced systems.
“Northern Trust brings nearly 40 years of transition management expertise,” Bateman says. “They support us with tools for planning, reporting, and managing complex projects.”
This partnership allows clients to benefit from global best practices while still working with a team that understands local market conditions.
The Three Pillars of Effective Transitions
According to David McPhillips, Business Development Manager for Portfolio Solutions at Northern Trust, successful transition management depends on three key areas.
“These are project management, reporting, and execution,” he explains.
Project management ensures that every step of the transition is planned and coordinated. Reporting helps clients understand costs, risks, and progress. Execution focuses on trading assets in a way that limits losses.
“Our role is to measure the risks in advance and build a strategy to manage them,” McPhillips says. “You need the right technology and a full team behind the process.”
Transparency Builds Trust
One of the main benefits of using a transition manager is transparency. Bateman says clear reporting helps portfolio managers understand the true cost of a transition.
“An effective transition manager shows all the costs involved,” he explains. “This includes obvious costs like commissions and less visible costs such as market impact.”
By seeing the full picture, investors can make better decisions and avoid unpleasant surprises.
Challenges in South African Markets
South Africa’s financial markets are less liquid than those in larger economies. This means it can be harder to buy or sell assets without affecting prices.
Matlala says discretion is especially important in these conditions.
“When markets are illiquid, information leakage can be very costly,” he says. “The fewer people who know about a large trade, the better.”
Transition managers aim to limit the number of parties involved and manage trades carefully to reduce market disruption.
Managing the Process End to End
Transition management does not end when trades are completed. Back-office processes, such as settlement and cash management, are also critical.
“If settlement processes are not aligned, clients may face overdraft charges or delays,” Matlala explains. “We manage the full chain to make sure the transition is clean.”
This end-to-end approach reduces operational risk and ensures assets move smoothly into the new portfolio.
Costs and Fees
Some investors worry that hiring a transition manager adds extra expense. Bateman says this is often not the case.
“At Standard Bank, we don’t charge a separate project fee,” he says. “Our fees are included in the trading commission that clients would pay anyway.”
In many cases, he adds, professional transition management costs less than handling the process internally, because it reduces hidden losses.
An Underused Specialist Service
Although transition management has existed in South Africa for many years, experts say it is still underused.
Bateman and Matlala believe this is because transitions are sometimes seen as routine administrative tasks rather than specialist projects.
However, as investment margins tighten, small inefficiencies can make a big difference to long-term returns.
“When performance matters, unnecessary costs matter too,” Bateman says. “Transitions should be treated with the same care as any investment decision.”
Growing Need for Expert Support
Funds today face increasing complexity. Many have more offshore investments, stricter regulations, and more demanding stakeholders.
Bateman says these trends make expert-led transitions more important than ever.
“Our job is to make change work smoothly,” he explains. “It’s not just about moving assets. It’s about using experience and expertise to protect value.”
As markets evolve and portfolios become more complex, transition managers are likely to play a bigger role in helping investors manage change without sacrificing performance.