For the asset and wealth management industry as a whole, certain functions and specialties are starting to see increasing compensation pressure to attract or retain key personnel. While overall U.S. compensation is set to increase 10% to 15% this year, compensation in Canada, Europe and Asia is expected to jump 15% to 20%, although bonus pools will be finalized later this year than in previous years.
The report, Navigating the New Terrain in the Asset and Wealth Management Industry, indicates asset managers returned to the basics to get business back on track and focused on top line growth, now that much of the dramatic cost cutting is behind them. Firms with platforms distinguished by their integrity, transparency and simplicity attracted not only clients, but talent.
According to a press release, wealth management remains highly competitive, with dominant national platforms fighting to hold market share in the face of consolidation and the increased threat from smaller boutiques and regional players, who are gaining ground in their ability to attract wealthy clients and top advisory talent.
Demand for CEOs with investment backgrounds continued into 2010, yet finding qualified individuals with the desired mix of leadership and technical skills proved increasingly difficult. As a result, “best athlete” appointments were on the rise, with solutions coming from other branches of the financial services industry such as investment banking, capital markets and the securities business, Russell Reynolds said.
Chief investment officers were in great demand this year as endowments, foundations, pension funds, family offices, sovereign wealth funds and asset and wealth managers were searching to fill that role. Debra Brown, a managing director at Russell Reynolds, points out the competitive headwinds from numerous simultaneous CIO searches led boards and investment committees to consider creative, non-traditional solutions in addition to tried and true methods.
There was also an increased demand for risk managers who have had line or profit/loss responsibility (to run business-unit level risk functions) as well as for those who have the demonstrated ability to work effectively with investors, bankers, and traders. However, the rise in compensation this role has enjoyed is expected to level off this year.Financial officer headcount remained steady in 2010, as companies continued to upgrade financial officer talent and weed out underperformers. CFOs, controllers, tax and audit executives are now expected to be strategic and proactive in working with senior management to create efficiencies across the organization. Compensation is expected to be flat to up 10% over last year.
Investors Dipping Back into Hedge Funds, Real Estate
Russell Reynolds Associates’ fourteenth annual report, Navigating the New Terrain in the Asset and Wealth Management Industry, indicates assets started flowing back into hedge funds this year, though new fund formation has become increasingly difficult with fewer and smaller launches on the docket. Larger, more mature hedge fund firms face the challenge of passing on the equity value to the next generation such that succession planning and ownership structure have come under increased review, according to a press release.
Investors began allocating capital to real estate again, although slowly and episodically with a bias towards core strategies, which drove the hiring of senior acquisition professionals. Real estate investment firms sought to build portfolio value by hiring strong operating leadership for their assets and building succession plans for the senior executives and functional executives of their operating companies. More than ever, compensation will be driven by firm economics rather than by peer group: Those who can pay, will; those who can’t, won’t.
In the fundamental equity space, global was up, domestic was down. Emerging markets, global, EAFE and international equity were all sought-after strategies and will remain so into 2011, Russell Reynolds says. As a result, there was heavy demand by traditional long-only players as well as hedge funds for global, international (non-U.S.) and emerging markets equity portfolio managers. Their domestic counterparts, however, struggled to find new opportunities. Compensation will reflect this, with global specialists seeing increases, while that of long-only domestic equity analysts and portfolio managers will likely be flat to slightly down except for those who turned in exceptional performance.
In fixed income, credit continued to a hot spot, with the demand for high yield talent and teams picking up again this year. Hedge funds saw positive flows in event-driven, global macro and distressed credit, adding to the upward pressure on this group. Some of this demand was satisfied by teams coming off of sell side prop desks.
At both traditional and alternative platforms, the most sophisticated institutional distribution executives who have longstanding client relationships and deep product expertise, knowledge of capital markets and familiarity with complex financial instruments were in high demand, as firms sought to woo investors searching for alpha. Compensation for those fitting this profile will be up significantly more than the 10% to 15% expected to be the industry norm.
The retail distribution talent market was stagnant. What hiring there was supported pre- and post-retirement advice and guidance models, intermediary channel initiatives in the RIA/independent area, and new media marketing initiatives. Compensation expectations are flat against last year.
The technology and operations function gained significant visibility with executive committees and boards, due to the ability of chief information officers to drive consolidation and automation of systems (and thus lower costs) and align people, processes and technology to improve overall governance and service delivery. The demand for talent is putting upward pressure on compensation, with increases of up to 15% to 20% expected.