NEW YORK--(BUSINESS WIRE)--Global executive search firm CTPartners today released a new report, “Asset & Wealth Management Talent and Compensation Trends 2011: Have We Arrived at the New Normal?” The report is a qualitative review of talent and compensation trends within traditional asset and wealth management firms, hedge funds, real estate and private equity firms, in the Americas, Europe/Middle East and Asia/Pacific.
The report addresses the impact of recent reverberations in the market that have dampened the compensation prospects for a year that began on a strong note. Many asset managers began 2011 with balance sheets showing stronger revenue lines with lower costs and higher profit margins than the industry had seen in three years. Bonus pools looked very promising.
Heading toward year-end, the report notes that many firms have been rewarded for doing more with less or for picking their spots for growth and investment, while others, particularly franchise financial institutions, are bearing the weight of diminished profitability from heavy losses in other parts of their business. As a result, the industry is in for some challenging conversations regarding year-end bonuses. Investment professionals at pure-play asset managers will fare better than those employed at global franchise firms, and that difference will need to be managed.
According to Cornelia L. Kiley, a partner in CTPartners’ Asset and Wealth Management Practice, “CEOs at these firms will find communicating the right performance and reward message to be challenging. In part, the message will need to address the possibility that as an industry, we are settling into the ‘New Normal,’ a prolonged period in which opportunities for growth are hard to identify, assessing risk is an elusive exercise and the business climate is increasingly difficult to navigate.
“Despite leadership seasoned at weathering turbulent markets and uncertain economic conditions, this year will present another challenging bonus season for CEOs who need to retain talent and make hard choices about investing in business development initiatives,” added Kiley. “Even though most CEOs moved to protect bonus accruals earlier this summer, the markets have wreaked havoc with top line revenue during the latter part of the year resulting in bonuses being directionally positive but in the single-digit area.”
Key findings from the report follow.
Asset Managers Vary in Ability to Pay Bonuses
- There is a sharp dichotomy in compensation expectations among asset managers. Compensation at businesses that are part of a global franchise will differ from compensation at pure-play asset management companies and independent hedge funds. Despite struggling under trading losses this year and the revenue impact of the Volcker Rule, many asset managers at large banks and securities firms had a strong profit outlook during the first half of 2011. “This split in fortunes will affect talent flows and put sell-side firms at a near-term relative disadvantage when competing for talent in areas such as finance, technology and operations. There may be some defections in certain investment areas as well,” commented Bob Gorog, partner at CTPartners.
- Overall, CTPartners expects bonuses to be in a range from a flat to 10 percent increase from 2010 levels for asset management professionals at global franchise firms, with the increase for most investment roles in or around five percent. For pure-play asset managers, bonuses are expected to be more consistently and broadly up – 10 percent over last year’s levels. Among hedge funds, generally, we expect compensation to be flat to last year with some exceptions where performance has been extraordinary.
- Unlike in previous years, many of the infrastructure roles such as finance and operations will be affected by the lackluster bonus year. “The traditional view,” said Mr. Gorog, “is that employees who don’t participate in the significant upside should be protected during down years. That may not be possible this year.”
Several Bright Spots in an Otherwise Challenging Recruiting Environment
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Look for continued interest in credit investment professionals,
emerging market debt or equity strategists, absolute return investment
professionals and solutions advisory talent.
“Institutional investors have been moving away from benchmark strategies and seeking alpha in absolute return strategies post-crisis, and CEOs are responding to this evolution more than ever,” says Keith Macomber, partner at the firm. Expect to see continued activity in building or acquiring absolute return teams or solutions advisory teams that can address the liability concerns of corporates or the funding requirements of public funds.
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Restructuring, upgrading and deepening distribution teams continued to
drive much of the recruiting in 2011. Institutional experience in
leadership roles for intermediary distribution strategies was highly
sought this year as firms vied for shelf space on wealth management
platforms that have institutionalized their manager evaluation process.
“Compensation at the highest levels of these wealth distribution teams has increased dramatically to attract the institutional experience they are seeking,” observed Gorog. “The top leadership roles in distribution are comparable to leadership roles in the institutional segment. Yet, that equity does not trickle down to the individual contributor level where an A-player institutional sales professional still out earns a top wholesaler.”
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Mid-size hedge funds are becoming more institutionalized as they work
to grab market share from large funds that are reaching capacity
constraints or returning investor capital.
“As mid-size firms build their infrastructure and expand their compliance efforts to meet the demands of both regulators and clients, these firms will look to recruit CCOs, COOs, CTOs, CFOs, and other operational executives,” noted Dennis Grant, a partner specializing in hedge fund talent management.
- Real estate investing continues to surprise with its stalwart nature measured by deal flow and capital allocations. Most large plan sponsors began 2011 with their real estate positions under-allocated. As a result, many have invested in some of the year’s more compelling themes, which focused on core/value-added strategies with a strong income component, including multi-family, assisted living/senior care, student housing, net lease, and commercial /housing development on the west coast. That said, recent market weakness has allowed the denominator effect to impact capital allocation decisions in the latter half of the year.
- Distressed property investing continues to be the bee-hive of activity, with new teams and new firms forming monthly. With many of the power-brands focused on large portfolios of residential and commercial assets, some firms have acquired special servicer businesses to get the first bite at the apple.
- The search for yield in fixed income portfolios continues for institutional investors in the U.K. and Europe, complicated by the extensive anxiety about sovereign bond portfolios. One result has been a keen interest in emerging markets, especially on the debt side. Absolute return strategies also have migrated into the traditional asset management space, becoming a component of mainstream asset allocation. “Solutions advisory capabilities are key to helping clients position their portfolios amidst considerable uncertainty and angst,” noted Tom Buckett, a partner in the firm’s London office.
- Cash-rich MENA institutions have a growing appetite for global investment products, as political turmoil in the region has heightened local market volatility and lessened interest in regional investments. This increased demand for global products has prompted a significant number of joint ventures between regional and global investment platforms.
- Institutional client development and distribution remain primary areas of focus in Asia among both traditional asset managers and alternative investment firms. Building a regional business presence and developing relationships with new sources of capital is essential for asset managers of all sizes, family offices, insurers and other financial firms.
Infrastructure Functions Continue to be Upgraded
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The need for expanding compliance and regulatory expertise in the
asset and wealth management sector continues to be top-of-mind across
the industry. Cross-fertilization of compliance expertise across
financial services sub-sectors is increasing, in recognition of the
need for deeper market expertise to address growing market complexity
and product sophistication.
“Compliance professionals with the ability to conduct the regulatory symphony of the global markets will distinguish themselves,” noted Glenn Buggy, a partner in the firm’s Financial Services Compliance & Regulatory Practice.
- Tech & Ops remains a “recession-proof” area, as businesses invest to leverage technology for competitive advantage, but the immediate challenges vary with the business size. Larger corporate environments continue to present challenges around the refinement and optimization of both technology and operations delivery.
The full report is available on request and online at www.ctnet.com.
About CTPartners
CTPartners is a leading performance-driven executive search firm serving clients across the globe. Committed to a philosophy of partnering with its clients, CTPartners offers a proven track record in C-Suite, top executive, and board searches, as well as expertise serving private equity and venture capital firms.
With origins dating back to 1980, CTPartners serves clients with a global organization of more than 400 professionals and employees, offering expertise in board advisory services and executive recruiting services in the financial services, life sciences, industrial, professional services, retail and consumer, and technology, media and telecom industries.
Headquartered in New York, CTPartners has offices in Bogotá, Boston, Caracas, Chicago, Cleveland, Columbia MD, Dallas, Dubai, Geneva, Hong Kong, Lima, London, Mexico City, Miami, Panama City, Paris, Santiago, São Paulo, Shanghai, Silicon Valley, Singapore, Toronto, and Washington, D.C.