As leaner times sweep through the asset management industry, everything from travel expenses and catering services to payroll (read: bonuses) are on the chopping block.
Lower investment returns and assets under management have depressed revenue, leading some managers to impose across-the-board cost cuts, according to managers, consultants and recruiters.
While money management divisions of investment banks squeezed by the global credit meltdown already have reduced staff along with administration and other non-payroll expenses, some independent asset managers are now beginning to follow suit.
Just last week, Ariel Investments LLC laid off 18 employees — roughly 20% of staff — in a belt-tightening measure amid “a brutal bear market,” said Mellody L. Hobson, president of the Chicago-based value equity firm, which had $8.9 billion under management as of June 30. The layoffs mostly were among support staff, but included two members of its research team — Robert Goldsborough and Mischone Donelson.
Elsewhere, Aberdeen Asset Management PLC, which had £113.7 billion ($214.5 billion) in assets under management as of the end of June, is “encouraging people to use video conferencing or call conferencing” to cut travel costs, according to Andrew Laing, deputy chief executive officer.
On July 18, Aberdeen officials said the firm — which is based in Aberdeen, Scotland and has 24 offices globally — would make £57 million in annual cost savings, sending its shares up 17.1% to 142.25 pence on the day.
At UBS Global Asset Management, Zurich, business-class travel has been limited to trips within Europe longer than three hours or trips to the U.S. of more than five hours, spokesman Richard Morton said. Prior to the changes in the travel policy, implemented around the end of 2007, there were no restrictions on business-class travel.
“Of course there are exceptions,” Mr. Morton added. “For example, if you're with clients, it's a slightly different situation. You're not expected to sit in economy while the client is sitting in first class.”
Even catering services — particularly for internal meetings — have been severely reduced, often down to the basics of coffee and tea. That's a big change from the pre-credit crunch days, when food aplenty was at every meeting, said sources who requested anonymity. “Sharing car services is also encouraged,” another added.
“It's a touch inevitable,” Mr. Laing of Aberdeen said in a telephone interview. “I think at some point or other, the vast majority of the fund management industry will have to confront the same sort of issues we're facing.”
Indeed, money managers are feeling the pinch as the credit crunch continues to bite, global economies weaken and financial markets take a hit, making returns harder to come by.
Andrew Formica, London-based head of equities and managing director of listed assets at Henderson Global Investors Ltd., said the credit crisis “is likely to have a lengthy impact” on asset managers globally, forcing them to look at fresh ways to manage costs. Henderson had £56.2 billion in assets under management at the end of June.
Henderson officials announced in February that they had implemented £20 million in cost savings for 2008 by reducing headcount and trimming other expenses. Officials also identified an additional £10 million in further non-payroll cuts — including expenses slated for marketing and information technology — to be implemented if “markets stay subdued,” according to Mr. Formica. In addition, some strategies the firm had planned to launch this year are being put on hold.
“The implication is that the credit crisis has invaded every part of the market,” Mr. Formica said. “We want to make sure that we're making appropriate adjustments to our cost base as well as our business plan to reflect the current environment.”
Several managers reported a decrease in revenue in the first half of 2008 compared with the same period last year, according to data from investment bank Jefferies Putnam Lovell, New York, a division of Jefferies & Co.
They include: Legg Mason Inc., Baltimore; AllianceBernstein Holding LP, New York; Franklin Resources Inc., San Mateo, Calif.; and Invesco Ltd., Atlanta. In the U.K., London-based managers including F&C Asset Management PLC; Schroders PLC, the parent company of Schroder Investment Management; and RAB Capital PLC all reported lower revenue in the first half of 2008 compared with the year-earlier period.
Amid this revenue squeeze, managers linked to investment banks — like UBS — have been particularly hard hit by cost-cutting measures as their parent companies attempt to show a high level of cost-consciousness, according to consultants to asset managers.