NEW YORK — While members of the broader financial services industry might be concerned about layoffs or lower bonus payouts because of the liquidity crunch and subprime meltdown, those in the asset management community appear to have little reason to fret.
In fact, employees at many asset management companies may be looking at bonuses that are 15% to 20% higher than last year as well as a continued increase in demand for investment talent and executive leadership, according to a new study from executive search firm Russell Reynolds Associates Inc., New York.
“The sell side has been hunkering down, slowing down or freezing their plans to make new hires, and also sitting on bonus pools because of the collapse of the structured finance markets,” Cornelia Kiley, managing director in the asset and wealth management practice at Russell Reynolds, said in an interview. “But a lot of asset managers have continued to grow their business and their top-line revenues, which will translate into higher compensation.”
Because the bonus size is often linked to investment performance and perhaps a company’s overall performance as well, it’s difficult to pinpoint exactly how the payouts will differ across various asset classes, James Houston, managing director at Russell Reynolds, said in an interview. But the search firm estimates that bonuses among those in alternative investments will likely be the highest in the industry, roughly 20% to 30% greater than 2006. Top performers could earn bonuses more than 30% above those last year.
And while bonuses are on the rise, many asset managers have been aggressively adding talent, a trend that is expected to continue throughout 2008.
Debra Brown, a managing director at Russell Reynolds, said in an interview that demand for talent has been particularly apparent in the “C-suite,” which includes chief executive officers and chief investment officers at money management firms.
Search activity at this level was up 15% from 2006, according to Russell Reynolds, based on the firm’s own recruiting assignments. Demand for CIOs has been a particular hot spot and is “off the charts” compared with last year, said Ms. Brown.
Looking for CIOs
In addition to asset management companies, a number of endowments, foundations, pension plans and family offices have been seeking CIOs more than ever, specifically searching for individuals with experience across multiple asset classes as well as extensive knowledge of alternative investments.
Such seasoned and widely experienced individuals are in short supply, said Ms. Brown and Mr. Houston, forcing compensation higher for the most qualified individuals while also resulting in more one- or two-year guaranteed pay packages for CIOs.
Compensation for CIOs varies, depending on the type of firm or institutional investor for which they work, according to Russell Reynolds. For example, a CIO at an endowment or foundation with between $1 billion and $2 billion in assets generally pays $600,000 to $800,000 in total annual compensation, while a CIO at a global, multiproduct wealth manager can earn between $2 million and $6 million, depending on the size of the firm.
CEOs also were in high demand by asset management companies during the year, according to the report. Change at the highest executive levels is be¬ing spurred by senior executives who are approaching retirement and directors who are applying more pressure for performance.
The report does not cite specific CEO searches, but searches for top spots are under way at Legg Mason Inc., Northern Trust Global Investments, TIAA-CREF and Harvard Management Co. New CEOs also were appointed at firms such as ING Investment Management, University of Texas Investment Management Co. and Clay Finlay Inc. during 2007.
Moving down the organizational chart, Russell Reynolds officials also point out that demand for portfolio managers and analysts has generally been strong across the asset management industry. However, Mr. Houston said there was some slowness in fixed-income hirings from 2006 and 2005, particularly in the areas of investment-grade and high-yield fixed income.
Despite more volatile market conditions in 2007, demand for equity investment professionals was strong, with international and emerging markets portfolio managers and analysts dominating most searches conducted by U.S.-based asset management firms. Demand should continue into next year, while searches for traditional domestic investment professionals might taper off.
And, while many quantitative strategies were hit hard in August, there is still a considerable demand for these investment professionals, Ms. Brown said, as more fundamental asset management companies are seeking out such modeling skills.
In alternative investments, hiring activity will also remain strong, the report said. As the alternatives world continues to institutionalize, more asset managers are focused on building both their leadership and administrative teams, prompting demand for more technology, operations, legal and compliance professionals.
