The Right Tool for the Job

Abstract

The current tools and approaches to transition management are biased towards either minimizing transaction costs or minimizing risk, but do not appropriately integrate both. This can lead to sub-par results, exposure to unintended risks and costs, and lingering doubts about whether the right decisions were made. This article shows that risk and cost do not have to be a trade-off. The multiperiod optimization (MPO) solution, which simultaneously addresses cumulative transition-period transaction costs and cumulative transition-period portfolio risks, produces a superior transition trade strategy and ensures that both the investor and the transition manager clearly understand the actual risks and costs during the transition period.