South African pension funds and investment managers often overlook the hidden costs of changing portfolio strategies. A routine administrative task can erode significant value if executed poorly, industry experts warn.
The visible expenses—trading commissions, legal fees—are only part of the story. The real damage occurs in less obvious ways, including market impact, opportunity costs, and settlement delays. These hidden costs can exceed the explicit ones, particularly in South Africa’s relatively illiquid markets.
Kagiso Matlala, an equity sales trader at Standard Bank, described the challenge. “From a trading point of view, you’re balancing market impact against opportunity cost for the fund,” he said. “If that balance is wrong, the fund could lag peers by a wide margin by the end of the transition.”
A single poorly executed trade doesn’t just affect the asset being sold. Its effects spread through the entire portfolio. “If you hold a certain asset and it’s traded badly, the impact isn’t limited to the price of what you sold; your other holdings lose value too,” Matlala added.
Transition managers focus on handling these challenges. Their work involves more than moving assets—they protect value through careful planning, execution, and oversight. Standard Bank, which works with Northern Trust for these services, highlights three key areas: project management, reporting, and execution.
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David McPhillips, Business Development Manager for Portfolio Solutions at Northern Trust, outlined the approach. “Our role as a transition manager is to optimize these areas, assess the risks, and develop a strategy to manage them,” he said. “You need a team with the right technology and expertise to support the process.”
The collaboration between Standard Bank and Northern Trust, established in 2021, combines local market knowledge with nearly 40 years of global experience in transition management. Adam Bateman, Head of Business Development and Strategic Partnerships at Standard Bank CIB, explained the benefits. “We bring strengths in understanding the client base, local markets, and liquidity pools during execution,” he said. “Northern Trust contributes expertise in pre-trade and post-trade reporting, along with project management.”
Transparency plays a key role. Bateman noted that effective transition managers provide clear details on all potential risks and costs, whether direct or indirect. This clarity helps portfolio managers make informed decisions rather than working blindly.
In South Africa’s illiquid markets, discretion is especially important. “You want to keep the process as quiet as possible, particularly when dealing with illiquid assets,” Matlala said. “Fewer people involved means less risk of information leaking and distorting prices.”
Settlement risks also pose challenges. A smooth handover requires coordination across the entire process, from trade execution to back-end operations. “The work doesn’t stop at the trade,” Matlala said. “If back-end processes aren’t aligned, clients may face overdraft costs or delays. We handle all of it to ensure a clean handover.”
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Cost is often seen as a reason to avoid transition managers, but Bateman argued that the opposite is true. Standard Bank doesn’t charge a separate project fee for these services. Instead, its fees are included in the trading commission clients would pay regardless. “In most cases, using transition management experts costs less than managing the process internally,” he said.
Despite these benefits, many institutions in South Africa still treat transitions as routine administration rather than a specialized function. Bateman and Matlala believe this mindset needs to shift, especially as performance margins narrow. “When performance is tight, unnecessary costs become more significant,” they said. “Transitions should receive the same care as any other investment decision.”
The demand for expert-led transitions will likely increase as funds deal with greater complexity—more offshore investments, changing regulations, and evolving market conditions. “Our role is to make these changes work smoothly,” Bateman said. “It’s about using knowledge and experience to protect value, not just moving assets.”
Experts agree the stakes are higher than most realize. Tools to reduce risk already exist, but institutions must recognize the importance of treating transitions as a critical process.
Funds looking to manage risk over time may find strategies that build wealth useful in broader planning.
