What is Transition Management?

Transition management is a financial service available to institutional investors who need to make significant changes to their portfolios, such as merging, selling, or substantially restructuring them. This process can expose investors to risk and using a consultant such as a transition company specializing in such activities can reduce losses and keep the portfolio strong through the transition. A number of sell side companies — financial firms specializing in offering sales of securities and related services — have a transition management department to assist investors.

Periodic changes to a portfolio can be required in response to changing market conditions, new company goals, and other events. While the transition can be handled internally, the company may take losses in the process of selling and moving securities because it doesn't handle large-scale portfolio transitions on a regular basis and might not be able to make the most out of the process. As a result, institutional investors usually turn to the services of a third party.

Transition management can include activities like merging two mutual funds in the most efficient and effective way, rapidly liquidating a portfolio to generate capital without creating large losses for the company, and so forth. A transition management team will be assembled to meet with investor representatives to discuss the goal of the transition and the time frame. This information will be used to develop an effective working plan.

The institution charged with handling the transition management can be given a large degree of latitude so it can act quickly to make appropriate financial decisions on behalf of its client. This allows firms to take advantage of rapidly changing market trends when it comes to moving and selling securities. Throughout the transition process, the goal is usually to keep the portfolio performing. Some discretion may be needed in some cases, as usually companies do not want to alert the financial industry to the fact that a portfolio is being liquidated or restructured, as this can make the process harder and may trigger a panic.

People working in this field have substantial experience with handling large portfolios. They may have business degrees or related educational qualifications. It is possible to receive bonuses and other benefits for handling a transition management especially well, creating an incentive for people to perform at the highest possible level while managing the transition. This can also generate a sense of competition, believed by many financial firms to be a beneficial aspect of the workplace by forcing people to constantly work to improve their performance.