Volatile markets and squeezed profitability within the money management industry likely drew down the compensation pool for senior executives at the end of 2015, according to consultants and executive recruiters.
But even though bonuses are expected to be down, the money management industry remained a competitive one, with recruiting off to a robust start in 2016, experts said.
New York-based compensation consultant Johnson Associates issued a report in November projecting money management professionals should expect to see a 5% decline in bonus payouts from the end of 2014. By comparison, Johnson Associates reported in May that bonuses for 2014 were 10% higher than they were the year prior.
In a phone interview conducted Jan. 26, Johnson Associates Managing Director Alan Johnson said those projections appear to be panning out, now that firms are in the process of handing out bonuses.
Mr. Johnson cited volatile markets, which pinched firms' flows, as the primary reason bonuses were down at the end of 2015. Other factors include money management firms increasing their costs by adding people and opening offices around the world, he said.
Still, Mr. Johnson said he doesn't see this as something to be particularly concerned about.
“Money management is doing better than other financial service firms,” he said. “People in asset management are as well paid as anybody, the culture is pretty good and the work is pretty fun.”
Yariv Itah, a managing partner at the Darien, Conn.-based money management consulting firm Casey, Quirk & Associates LLC, also said that overall compensation levels dropped in 2015 relative to 2014.
“2015 started out as a strong year, but then the second half of the year came and changed that around. So we would expect senior compensation to drop,” Mr. Itah said, adding the compensation and bonus pools dropped between 2014 and 2015 because the profitability of the asset management industry went down during that time.
Mr. Itah cited several factors for the decline of money management profitability, such as capital market activity, slower flows and fee pressures. He also pointed out that many firms made significant investments in infrastructure and information technology, which added to costs and took away from the bonus pool.
Ashton S. McFadden managing director and founder of the executive recruiting firm Jamesbeck Global Partners LLC, New York, cited another factor affecting bonuses: “This business is very market- and outlook-driven,” he said. “The market didn't behave well and the outlook is cloudy. So a lot of people think we're heading into global recession and that means folks pulling in the reins.”
But while bonuses are down within the money management industry, recruiting is up.
“We've seen a frenzy of recruiting activity so far this year,” said Deb Brown, a senior member of the asset and wealth management practice at executive recruiting firm Russell Reynolds Associates, New York. “I've been in this business more than 20 years, and I have never seen a year start with such intensity as this one.”
Mr. McFadden said something similar. “We're actually quite busy right now, so it's a bit counterintuitive. I think some (managers) feel the U.S. is doing a little bit better than the rest of the world, so they continue to recruit.”
According to Mr. McFadden, after the global financial crisis in 2008, recruiting slowed dramatically. However, a number of managers realized they missed opportunities to hire talented people at reasonable prices. Now, managers aren't being as cautious as they had been post-crisis.
“There were some huge opportunities to get good people and teams (then),” he said. “But people were just so shell-shocked” at the time.
Recruiters said money managers are looking to fill roles that run the gamut from sales executives and portfolio managers (particularly those with expertise in fixed income, alternatives and multiasset-class solutions) to CEOs, the latter to succeed retiring executive leadership.
Laura Pollock, founding partner of New York-based executive recruiter Third Street Partners, explained that although the bonus pool within the asset management industry has either shrunk or is flat from the year-earlier period, money managers still are setting aside more for compensation compared with other industries.
Not only that, but they're also making sure the year-end bonuses are going to the right people within the firm.
“It's always feed the eagles, starve the turkeys,” Ms. Pollock said. “The people that drive performance and revenue get paid, and they get paid well.”
She added that money management firms need to be particularly diligent in both retaining and recruiting talent. And often, it will take more than large year-end bonuses to keep executives loyal, such as opportunities for advancement or the chance to be part of a growing organization.
“Asset managers need to know who their active performers are and need to know who to recruit if they choose to leave,” she explained. “This is a very competitive market. They're being actively recruited all the time.”
Another recruiter, Robert Gorog, a partner in David Barrett Partners' Boston office, agreed smart money managers know to pay their top earners top dollar.
“Bonuses are flat to down. There's less pie to go around, but in the current job market people have a lot of options, so there's a lot of pressure on money managers to pay their best people more,” Mr. Gorog said.
This article originally appeared in the February 8, 2016 print issue as, "Manager recruiting heating up despite dip in bonus payouts".