Transaction Costs and Your Funds Largest Expense
This presentation is the property of its rightful owner.
Sponsored Links
1 / 12

Transaction Costs and Your Funds Largest Expense PowerPoint PPT Presentation


  • 61 Views
  • Uploaded on
  • Presentation posted in: General

Transaction Costs and Your Funds Largest Expense. 72% of Portfolio Management Expenses Are Brokerage Related!. Source: Myners Report 2001; QSG 2005. Source: Myners Report, QSG. Fiduciaries Required To Monitor Transaction Cost. Most Plan Investment Policy Statements explicitly state “Best

Download Presentation

Transaction Costs and Your Funds Largest Expense

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Transaction costs and your funds largest expense

Transaction Costs and Your Funds Largest Expense


72 of portfolio management expenses are brokerage related

72% of Portfolio Management Expenses Are Brokerage Related!

Source: Myners Report 2001; QSG 2005. Source: Myners Report, QSG


Transaction costs and your funds largest expense

Fiduciaries Required To Monitor Transaction Cost

  • Most Plan Investment Policy Statements explicitly state “Best

  • Execution” Requirements

  • Most Manager Contracts Also Refer to “Best

  • Execution”

  • Managers shall “Effect all transactions for the Portfolio subject to best price and execution.“ (quote from a county pension fund IPS)


Best execution has no standard meaning

“Best Execution” Has No Standard Meaning

“When it comes to defining best execution, it's often a case of, ‘I know it when I see it.’“

What Is 'Best Execution'? By Daniel Safarik, Advanced Trading, Jan 29, 2007


What is the primary determinant of cost

What is the Primary Determinant of Cost?

Industry and academic research concludes the average performance differential between the top performing broker and the tenth highest ranked broker:

Large Cap

Equities:

130%

Small Cap

Equities:

220%

Investment

Style:

178%

*Source: Vodia Group 2007

Broker Selection Is A Major Factor in Execution Quality


What are pension funds doing to address the issue

What Are Pension Funds Doing to Address the Issue?

Investment Review Process:

Best Execution Review Process:

  • Quantitative Manager

  • Selection Process

  • Ongoing Manager

  • Research and Oversight by

  • Investment Consultant

  • Quarterly Performance Review

  • by Board

  • No Broker Selection

  • Process

  • No Ongoing Research or

  • Oversight of Brokers

  • No Board Review of

  • Broker Performance


Transaction costs and your funds largest expense

Impact Of Research in Broker Selection


Transaction costs and your funds largest expense

Fiduciary Process is Required to Fulfill The Mandates of Your IPS

  • Step 1 - Gain Enhanced Transparency

  • Step 2 – Use that Transparency as Actionable

  • Intelligence

  • Step 3 – Communicate issues with Managers

  • Step 4 – Monitor for Improvements


Transaction costs and your funds largest expense

Can Pension Funds Directly Effect Transaction Costs?

Event Based Program/ Portfolio Trading

  • Default to the Asset Manager

  • Existing Relationships With Other Service Providers

  • Qualitative RFP/ Bench

  • Competitive Bidding Process


Transaction costs and your funds largest expense

The Right Way: Just Like You Select Asset Managers

I. Performance

- Liquidity Charge

- VWAP

- Execution Differential

- Timing Consequence

II. Process

- Evidence of a repeatable approach to trade execution

- Systems resources utilized in support of trading process

- Trading analytics and measurement systems

III. People

- Personnel committed to program trading

- Middle office staff committed to support of program traders

- Personnel turnover ratios

- Experience executing transition program trades

- Structure of compensation programs

75% Quantitative

25% Qualitative


Transaction costs and your funds largest expense

Establish A True Fiduciary Process

  • Quantitatively Based Broker Selection

  • Conflict Free Event Administration

  • Real Time Independent Trade Oversight

  • Independent Pre and Post Trade Reporting

  • End to End Transparency

Same Process Used in Asset Management


Transaction costs and your funds largest expense

Stephen Malinowski Managing Director

GTS Advisors

610-755-3822

[email protected]


  • Login