A volatile second half of this year has diminished the prospects for a large increase in investment professionals’ bonuses in 2011, according to a report by CTPartners.
Bonuses this year will range from relatively flat to up by 10% and could signify a “new normal” for compensation structures moving forward — defined in the report by Cornelia Kiley, partner and co-editor of the report, as a “prolonged period in which opportunities for growth are hard to identify, the business climate is increasingly difficult to navigate and the need for courageous leadership and managerial skills trumps all other factors.”
“We believe very strongly we’re in a period where compensation will be restructured with deferred components and longer-term growth,” Ms. Kiley said in an interview.
Bonuses are still expected to rise, but a divide exists between those at pure-play asset managers and global franchise firms.
The report, “Asset & Wealth Management Talent and Compensation Trends 2011: Have We Arrived at the New Normal?” expects bonus increases to be in a flat to 10% range from last year for asset management professionals at global franchise firms, with most investment roles around 5%. For pure-play asset managers, bonuses are expected to be up 10% from last year’s levels.
“Asset managers with big global franchises are going to have to bear the weight of losses in other parts of business,” Ms. Kiley said. “It was a bad year to have a good year. … Where you’re sitting will determine your bonus outlook.”
Robert Gorog, also report-co-editor and partner at CTPartners, an executive search firm based in New York, said the industry is in a time of increased polarization where the top performers need to be retained, and compensated accordingly, while the midlevel employees who all got paid well in prosperous times are not seeing that same level of compensation now.
“The pie has shrunk. Some will get a big piece while others are getting a much smaller piece,” Mr. Gorog said. “The gap between mediocrity and A-players has definitely widened.” He said that trend should continue.
Ms. Kiley noted there have been several exceptions to her perceived “new normal” mindset, especially in alternatives. Broad-based asset managers are responding to investor demand for yield and uncorrelated returns by adding alternative strategies to their offerings, causing firms to seek talent for new investment and distribution initiatives focused on alternatives, the report states. She said the “capital splurge” into broad-based alternatives looks like it will continue for the next 12 months.
“It’s broadly driven by an investment appetite to move from the classic benchmark style to alpha and alpha-generating strategies,” such as credit, absolute return and emerging markets debt and equity, Ms. Kiley said. Absolute-return strategies have migrated into the traditional asset management space, becoming a component of mainstream asset allocation, according to the report.
Distribution, compliance, and technology and operations positions are other “recruitment hot spots” as money managers look to catch up on new, more complex sets of products and regulations, and attempt to create competitive advantages through technology, Ms. Kiley said. Compensation in those areas is increasing as well.
“Managers in turn are really focusing on beefing up distribution talent,” Ms. Kiley said. “It’s been a very strong theme, especially in intermediary distribution.”