category of cost and hence need to pool assets with other plans through the use of commingled vehicles in order to prevent costs from significantly detracting from performance. While most of this expense control for smaller plans is intuitive, one underestimated benefit from the use of commingled vehicles is reduced transaction costs for larger plans. Some asset classes are very illiquid and hence have very high transaction costs. If there are significant cash flows in the investment program, a single manager with concentrated positions can incur very significant transaction costs from market impact. In this context commingled vehicles spread the capital more widely and can reduce the market impact on individual securities. In addition to the use of commingled vehicles to reduce costs, large programs have other tools at their disposal. In the course of an investment program there will always be manager transitions due to asset allocation changes as well as the hiring and firing of investment managers. The movement of dollars among asset classes or managers creates significant transaction costs that can and should be managed. For example, terminating Large Cap Value Manager A in favor of Large Cap Value Manager B creates significant portfolio transactions during the transition. While there is most likely holdings overlap and those securities can be transferred in-kind, there will be a significant portion of the portfolio that needs to be sold and new securities to be purchased. If the new manager simply sold unwanted securities on the open market, the portfolio would be subject to commissions and, depending on the liquidity in the market, significant price impact (i.e., selling/buying in a lower-liquidity stock, causing poor price execution). Medium to superlarge plans have service providers available that can help reduce these costs. Specifically, programs can employ transition management firms to help them reduce costs during portfolio changes. Transition managers provide access to centralized pools of cheap liquidity where buyers and sellers come together to communally reduce transaction costs. Transition managers reduce costs by crossing assets among contributors, thus not exposing transactions to the open market. Not all assets in a portfolio can be crossed within the transition pool, and hence some open-market transactions are required. However, in aggregate, utilizing a transition manager's crossing network can significantly reduce transition costs. ASSET ALLOCATION DRIFT AND COMPLETION MANAGEMENT2 In a large plan with many specialized managers, unintentional asset allocation risk is often quite large. While there are many activities that create unintentional asset allocation risk, the first and most important is drift. Drift occurs when the value of underlying portfolio holdings moves away from the strategic benchmark due to differences in asset class returns and the fact that fixed benchmark weights reset at the end of every month.3 For example, imagine a 60 percent stock/40 percent bond 2Special thanks to Mark Carhart for this section. 3If left unspecified, multi-asset-class benchmarks reset to their fixed proportions at the same frequency as performance is reported, typically monthly. Increasingly, clients are specifying that benchmark weights drift with asset valuations over longer horizons, permitting benchmark reset frequencies such as quarterly, semiannually or annually.