Plan Sponsors and Institutional Transition Providers Welcome Call to Establish an Industry "T Standard" (Russell.com)

Industry Standard for Portfolio Transitions Ready for Use:
Plan Sponsors and Institutional Transition Providers Welcome Call to Establish an Industry "T Standard"

TACOMA, Wash. — Uniform standards to calculate the performance of institutional investment portfolios during a transition moved closer to becoming reality today with the issuance of a public comment version of the standards. Dozens of transition providers, plan sponsors, consultants and other institutional investment organizations have been involved in a cooperative consultation process prompted earlier this year when Bob Collie, a Director at Russell Investment Group, issued a public call for a common set of performance calculations.

"Public comment represents the last step before we can say we're done," said Collie. "In reality, this version is ready to be put into a transition management agreement today."

Collie said that the response from the institutional investment community has been positive and has allowed rapid progress since the original call for action.

Christopher Ailman, Chief Investment Officer, California State Teachers' Retirement System (CalSTRS), said, "We absolutely need a common standard. It's unacceptable that, for the same event, one firm can come up with one performance number and another firm calculates a different one. How a fund evaluates its transition and whether that performance was good or bad is a matter of judgment. But the number itself and the underlying calculation for that number should not be up for debate. The Plan Sponsor industry demands a consistent standard."

Ailman added that the $106 billion CalSTRS fund, the third largest pension fund in the nation and fifth largest in the world, will adopt the proposed standard as its permanent measure of transitions.

The standard, which is becoming known as the "T standard," moves the methodology for measuring portfolio transitions closer to the methods used to measure long-term investment management mandates.

Collie said the key to reaching agreement has been to concentrate on the outcome experienced by the investor, rather than the actions taken by the transition manager. This represents a change of focus for most.

"Not every aspect of a transition is under the transition manager's control. Some are still nervous about the fact that the standard will present everything to the client, whether it is really attributable to the transition manager or not," Collie said. "But that's the only way to move forward. We show the outcome, warts and all, and then allow the client and transition manager to interpret that outcome as best they can. This will lead to a much higher quality of analysis. Any other way makes it too easy to disguise a bad outcome."

The new standard does not cover the construction of composite track records, which Collie views as the next step once the existing "T standard" is fully accepted and in practice.

"We still want to see standards governing composites, but we are a long way from agreement on those. More work is needed, but today we are taking the first step."

Russell, a global leader in multi-manager investing, provides investment products and services in more than 35 countries. Russell manages more than $85 billion in assets and advises clients worldwide representing more than $1.6 trillion. Founded in 1936, Russell is a subsidiary of Northwestern Mutual and is headquartered in Tacoma, Wash., with additional offices in New York, Toronto, London, Paris, Singapore, Sydney, Auckland and Tokyo.

Russell Investment Group is a registered trade name of Frank Russell Company, a Washington, USA Corporation, which operates through subsidiaries worldwide. Frank Russell Company is a subsidiary of The Northwestern Mutual Life Insurance Company.