Optimizing Portfolio Transitions

A simple proposition: There exists no “perfect plan” to guide transitions from legacy (i.e., existing) portfolios to target portfolios. The “good plan” balances art and science, and requires significant resources if it is to be executed quickly and cost effectively. Efficient and cost-effective portfolio transitions require three ingredients: First, sound judgment and extensive experience are needed to plan and execute each transition (the art). Second, proven portfolio-optimization techniques are required to reduce opportunity costs relative to the desired portfolio (the science). Third, access to multiple sources of liquidity—internally through crossing clients’ trade requests, and externally through crossing networks, alternative trading systems and exchanges—is essential to minimize costs and enhance performance.