Key Takeaways:
- Rising transition activity is redefining transition management from execution to portfolio impact
- Credit transitions are becoming more precise and exposure-focused
- Interim management is evolving into bespoke, risk-managed portfolios
- We see financial institutions expanding transition use across fund structures
As transition activity increases, what was once seen as a step between portfolios is becoming part of the outcome itself. Execution is now more closely tied to how portfolios are reshaped, particularly as restructures grow larger, more frequent, and more complex.
Three trends are shaping this shift, highlighting how implementation is becoming more precise, more deliberate, and more central to portfolio outcomes.
Credit transitions play a larger role in fixed income outcomes
As credit plays a larger role in generating income and diversification, how exposures are transitioned has become more consequential. Portfolios are more granular, with allocations increasingly targeted at specific segments rather than broad fixed income buckets. That makes transitions more complex, as duration, spread exposure, and liquidity must all be managed together to avoid unintended shifts in risk.
The structure of credit markets has evolved too. Electronic trading platforms now allow investors to source quotes from multiple counterparties at once, increasing competition and improving execution across large numbers of securities. For portfolios with hundreds of line items, this creates a more controlled and transparent way to move risk. And with Russell Investments’ unique new fee structure, the costs to manage these events has been lowered.
These dynamics are reshaping the impact transition management can have on outcomes. In a recent period of market volatility, a large fixed income portfolio was repositioned as part of a manager change, including allocations to less liquid credit sectors. Rather than allowing the portfolio to drift, the transition was executed as a coordinated event using multi-dealer execution and tight control of information. Despite the challenging backdrop, exposures were aligned with target levels from the outset, trading was completed on schedule, and performance held up well relative to expectations after costs.
Read more: Inflation: A Molehill, Not a Mountain
Interim management as a customized portfolio solution
Institutional investors have used passive funds or ETFs as interim exposure tools to park assets as they identify and contract with new managers. That approach is becoming harder to justify as portfolios grow more customized and conversions take longer to fully implement.
What is emerging instead is a more deliberate approach built around bespoke portfolios. Interim management was used to preserve duration exposure and manage derivatives throughout the process, allowing assets to be migrated to the new structure more efficiently without disrupting the overall strategy.
This highlights how interim portfolios are constructed specifically for each client. Starting with the existing allocation, the portfolio is optimized toward a benchmark with a client-defined level of tracking error. No two portfolios look the same. Each reflects preferences around cost sensitivity, turnover, and how tightly the portfolio should track during the interim period.
The way these portfolios are managed is also changing. Interim assets are increasingly supported by broader investment management capabilities, bringing more formal governance, risk management, and reporting into the process. What was previously handled in a more bespoke way within transition teams is now backed by a more established framework.
Mutual funds and variable annuity embrace transition management
Financial institutions are using transition management in more embedded ways, particularly within U.S. structures such as 40 Act funds. In these environments, changes to fund lineups, manager assignments, or asset allocations must be implemented while portfolios remain fully invested and operational.
These changes are often tied to broader restructuring efforts. Manager rationalizations, platform realignments, and balance sheet repositioning are carried out across multiple funds at once, requiring coordination across portfolios rather than isolated execution.
Transition management is increasingly used to manage this process end-to-end. Instead of a single event tied to a manager change, it becomes a way to sequence and deliver a series of changes while maintaining exposure throughout the transition.
Working within 40 Act structures introduces additional constraints. Daily liquidity, subscriptions and redemptions, and pricing requirements mean that transitions must be aligned with fund flows. Implementation is often phased and coordinated over time, rather than executed in a single step.
For portfolios, this provides greater control over how change is delivered. Exposure can be maintained, tracking error managed, and activity coordinated across multiple funds simultaneously, helping institutions implement change while minimizing disruption to underlying investors.
Investor Implications
Transition management is playing a larger role in how portfolios are implemented as restructuring activity increases. Credit exposures require more precise handling, interim portfolios are becoming more tailored, and implementation within fund structures demands greater coordination. A more deliberate approach to transitions can help maintain alignment, manage risk, and improve outcomes through periods of change.
A message from Advisor Perspectives and VettaFi: Discover something new! Click here to register for our upcoming webcasts.
These views are subject to change at any time based upon market or other conditions and are current as of the date at the top of the page. The information, analysis, and opinions expressed herein are for general information only and are not intended to provide specific advice or recommendations for any individual or entity.
This material is not an offer, solicitation or recommendation to purchase any security.
Forecasting represents predictions of market prices and/or volume patterns utilizing varying analytical data. It is not representative of a projection of the stock market, or of any specific investment.
Nothing contained in this material is intended to constitute legal, tax, securities or investment advice, nor an opinion regarding the appropriateness of any investment. The general information contained in this publication should not be acted upon without obtaining specific legal, tax and investment advice from a licensed professional.
Diversification and strategic asset allocation do not assure a profit or guarantee against loss in declining markets.
Please remember that all investments carry some level of risk, including the potential loss of principal invested. They do not typically grow at an even rate of return and may experience negative growth. As with any type of portfolio structuring, attempting to reduce risk and increase return could, at certain times, unintentionally reduce returns.
The Russell Investments logo is a trademark and service mark of Russell Investments
The information, analyses and opinions set forth herein are intended to serve as general information only and should not be relied upon by any individual or entity as advice or recommendations specific to that individual entity. Anyone using this material should consult with their own attorney, accountant, financial or tax adviser or consultants on whom they rely for investment advice specific to their own circumstances.
Products and services described on this website are intended for United States residents only. Nothing contained in this material is intended to constitute legal, tax, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. The general information contained on this website should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. Persons outside the United States may find more information about products and services available within their jurisdictions by going to Russell Investments' Worldwide site.
Russell Investments is committed to ensuring digital accessibility for people with disabilities. We are continually improving the user experience for everyone, and applying the relevant accessibility standards.
Russell Investments' ownership is composed of a majority stake held by funds managed by TA Associates Management, L.P., with a significant minority stake held by funds managed by Reverence Capital Partners, L.P. Certain of Russell Investments' employees and Hamilton Lane Advisors, LLC also hold minority, non-controlling, ownership stakes.
Frank Russell Company is the owner of the Russell trademarks contained in this material and all trademark rights related to the Russell trademarks, which the members of the Russell Investments group of companies are permitted to use under license from Frank Russell Company. The members of the Russell Investments group of companies are not affiliated in any manner with Frank Russell Company or any entity operating under the "FTSE RUSSELL" brand.
© Russell Investments Group, LLC. 1995-2026. All rights reserved. This material is proprietary and may not be reproduced, transferred, or distributed in any form without prior written permission from Russell Investments. It is delivered on an "as is" basis without warranty.
© Russell Investments
Read more commentaries by Russell Investments
