NEW YORK -- Investment management personnel hirings have been hit only modestly by the September-October market correction, according to a Russell Reynolds Associates report.
One change: While in the beginning of the year top investment management professionals could "write their own tickets," firms now are being more deliberate in their hiring and compensation practices, the report by the New York-based executive recruiting firm said.
"The cutbacks in hiring in the investment management area are not as drastic as you see in the investment banking area," said Richard S. Lannamann, co-head of Russell Reynolds' financial services sector. "Most firms are continuing to hire selectively in key targeted areas.
"Most money management professionals realized the returns of the last several years were unsustainable, and people had been fairly cautious in their hiring, so they haven't had to react with surprise and alarm in running their businesses," he said.
Still, there are areas of weakness, particularly among emerging markets, small-capitalization equity and high-yield investment professionals, and the hedge fund area is not going to shine in 1999, he added.
The major trends identified in the report include:
* Companies are looking for portfolio managers with good records who have not yet developed recognizable names, and particularly those who have people management skills.
* Top portfolio managers can command seven-figure salaries and long-term contracts.
* There is growing demand for value managers and international stock pickers, and slowing demand for growth stock portfolio managers and international country allocators.
* In fixed-income management, demand is strongest for taxable generalists, and weak for mortgage-backed bond specialists.
* Demand is strong for real estate and private equity managers, and compensation is climbing.
* Money management firms are building in-house research teams because of skepticism about sell-side research.
* Investment management firms seeking chief executive officers now look for individuals with international business experience and the ability to manage multiple distribution channels and multiple products.
Because of U.S. equity performance, domestic portfolio managers have commanded large bonuses and overall compensation packages, the report said: "Top portfolio managers are paid well into seven figures, have long-term contracts, significant bonus potential, and, in some cases, receive a percentage of the fund(s) managed."
There has in the past been continuing emphasis on recruiting top-performing portfolio managers with recognized names and track records, and in the case of mutual fund portfolio managers, top Morningstar ratings.
But now money management firms are seeking portfolio managers with positive track records, but whose names "have yet to achieve 'marquee' value." Such firms are showing less tolerance for star portfolio managers' sky-rocketing compensation levels, the report said.
"This is different from three or four years ago when we would get requests for the three or four or five stars with hot records," said George R. Wilbanks, co-head of Russell Reynolds' North American investment management practice.
The report said there is continued emphasis on developing teams of portfolio managers and a movement away from star systems. "Firms that have been known for their star portfolio managers are increasingly realizing that they are at risk if they lose one, and as a result, team portfolio management is rising in both institutional asset management and mutual fund companies," it stated.
Portfolio managers who combine strong investment performance and people management skills are increasingly in demand, but are in short supply, the report said. Early in 1998 the demand was for growth stock managers, but demand has now picked up for value managers.
Money management firms seeking to diversify their product lines have increased the demand for strong international or global equity portfolio managers, with demand greatest for bottom-up stock pickers rather than asset or country allocators. Bottom-up portfolio managers are being sought by both institutional and retail-driven firms, the Russell Reynolds report said.
"In the fixed-income area we are seeing firms looking for strong taxable fixed-income generalists," people who are equally adept in investment-grade corporates, mortgage-backed securities and Treasury securities, said Susan B. Fowler, also co-head of Russell Reynolds' North American investment management practice.
"Typically these people are working in teams, and all the team members are strong. Last spring, people were looking for high-yield managers and anyone who had a track record and would consider making a move would find a lot of opportunities. But they're not in high demand these days."
Compensation for fixed-income portfolio managers varies across different types of companies, the report said.
In mutual fund companies, total cash compensation "remains high, with bonus potential based on the individual's performance up to 300% of base salary." In small, privately held companies, "generous base salaries are offered with bonus potential up to 100% of base and equity participation based on the individual's and the firm's performance."
REAL ESTATE DEMAND
In the real estate sector there is "a very limited talent pool" and as a result compensation is "being squeezed sharply upward." Those with five to seven years' experience can demand compensation in the $500,000 to $700,000 range, the Russell Reynolds report said.
The report said there has been a general increase in demand by both large and small firms for in-house research talent -- especially fundamental and value-oriented analysts.
In addition, there is a premium for buy-side training because investment management firms believe the transition from the sell side to the buy side is more difficult than many sell-side professionals suspect.
The compensation gap between buy- and sell-side research remains, but is narrowing, with base salaries on the buy side in the $100,000 to $250,000 range, with bonus opportunities of two to three times salary.
Top management executives with global experience and the ability to manage multiple products across multiple distribution channels are in high demand for CEO positions, especially if they have had "deal" experience -- pulling together mergers, acquisitions or joint ventures.
However, because of the growing number of mergers and acquisitions, senior operating professionals are seeking "change of control" clauses and severance arrangements as part of their compensation agreements before they will make a move.
An increase in demand also exists for chief technology officers and senior systems professionals to address year 2000 demands.