Noise and How to Reduce It in Transition Management Pre-Trade Comparisons

Abstract

An apples-to-apples comparison of transition pre-trade analyses is not straightforward, if indeed possible. Due to fiduciary responsibilities, transition clients are inclined to provide transition managers with only high-level pre-trade portfolio characteristics instead of the actual underlying holdings to avoid information leakage. Providing portfolio characteristics leaves room for different interpretations by transition managers on the exact underlying assets involved in the transition. This issue is a major concern that causes noise in comparing pre-trades. This article presents several suggestions for reducing noise in pre-trade comparison while improving the client’s understanding of pre-trades (and comparisons.)

TOPICS: Portfolio construction, portfolio management/multi-asset allocation