BNY Mellon is targeting insurance companies with a new transition management service.
The big custodian bank, which already offers transition management services to pension plans and other institutions, formed a registered investment advisor to service large investment management companies that typically utilize outside firms to manage some or all of their investments.
These asset managers may utilize networks of sub-advisors to manage investment companies registered under the Investment Company Act of 1940.
“We’re seeing growing demand for transition management services from insurance companies and other financial intermediary complexes that manage 40 Act Funds,” Mark Keleher, chief executive officer of BNY Mellon Beta & Transition Management, said in a statement.
Transition management involves helping institutional investors switch their portfolios from one money manager to another. Custodian banks compete against broker-dealers for the business. Trading is typically handled by brokers’ program trading desks or internal order matching systems.
BNY Mellon affects transition management trades through its broker-dealer subsidiary MBSC Securities, which in turns outsources execution and clearing to other broker-dealers such as UBS Securities and Merrill Lynch’s Broadcort Capital.
Keleher noted that while the utilization of transition management for large portfolio changes has been widely accepted by pension funds and other institutions that own the assets under management, it has been less widely adopted by financial institutions with sub-advisory platforms.
For these investment management firms that have used transition management, many have historically tapped their existing broker-dealer relationships. Recent regulatory changes are causing many broker-dealer-based transition managers to leave the business, Keleher noted, and as a result, demand is rising for transition managers that are registered investment advisors.
Both Credit Suisse and JP Morgan recently exited the transition management business.
