Changes in investment industry spur firms to look for different kinds of talent to conquer challenges
In response to systemic changes in the investment management industry, a cadre of money managers is training a laser focus on attracting and retaining quantitative specialists, data scientists, ESG aficionados, portfolio constructionists, and more women, minorities and people with diverse backgrounds.
Demand has sharpened for next-generation investment talent — both in terms of age and skill set — from investment firms intent on reshaping their businesses to meet new investor needs and to thrive in tougher market conditions.
"All things technology" is arguably the hottest area of recruitment for money managers, said Kevin P. Quirk, principal based in the Darien, Conn., office of Casey Quirk, a business of Deloitte Consulting LLP.
Money managers are seeking data scientists from the technology sector and other industries to add machine learning and robotic automation to their arsenal of tools to improve efficiency, cut costs and enhance investment management.
Goals include improving investment decision-making through better analysis of larger alternative data sets, even for fundamental managers, and automation of routine processes on the operational side of money management companies.
"Research and development in this area is becoming very important. It's not clear that investment companies know exactly where they're going with data manipulation," Mr. Quirk said, noting that for many managers, adding more machine learning and robotic specialists "still is in an experimental phase for many firms that might — managers hope — result in better skill sets five years from now and what could be a very lucrative improvement for companies overall."
Investment managers are facing very steep competition for the same pool of artificial intelligence experts from companies outside the money management industry, Mr. Quirk said, which has led some firms to train existing employees to become data scientists.
J.P. Morgan Asset Management (JPM), New York, for example, relies on internal recruitment to fill data analysis positions as well as other roles within the investment business, said Christopher P. Willcox, chief executive officer, in an email.
"We don't have to hire thousands of data scientists from Silicon Valley to be cutting edge … we certainly have made some key hires from tech companies, but we also are investing in training programs for our own employees that allow us to transform … (them) into data scientists," Mr. Willcox said. He added, "retraining is a great way to retain talented employees."
JPMAM managed $1.7 trillion as of Dec. 31.
"Demand is constant" from investment firms for specialist environmental, social and governance portfolio managers and researchers, as well as for female and minority candidates who add diversity to the employee base, said Debra J. Brown, managing director in the investment practice of executive recruiter Russell Reynolds Associates Inc., New York.
"Firms are still struggling with the diversity equation at senior levels," she added, noting that inclusion also has been "a key theme on the retention front. The demand for ESG has historically been an institutional phenomenon but now is much more common in retail offerings."
Managers have a significant vested interest in building a more inclusive workforce because "public pension funds want to see their money management firms increase the diversity of their employee base. Historically, this has been a white-male-dominated business," said Mitch D. Dynan, managing principal and head of public markets at investment consultant Meketa Investment Group Inc., Westwood, Mass.
For example, Pacific Investment Management Co. LLC, Newport Beach, Calif., created Project DNA, a program that aims to "embed diversity in every level of the company," including recruitment, said Graham Honda, executive vice president and head of talent acquisition.
Two internal teams at PIMCO are focused on diversity and inclusivity to provide firmwide training to erase unconscious biases and promote a diverse culture, while dozens of affinity groups provide social camaraderie and support for veterans, African Americans, lesbian/bisexual/gay/transgender individuals and other cultural groups.
PIMCO managed $1.7 trillion as of Dec. 31.
Another area of intense recruiting interest from money managers running multiple investment strategies is for experienced portfolio constructionists and asset allocation modelers to staff their customized client solutions practice and multiasset-class strategies, said Keith S. Macomber, a partner at Capitus Associates LLC, a New York-based executive recruiter.
Quantitative manager Acadian Asset Management LLC, for example, launched an multiasset-class strategy less than two years ago and is encountering a "high level of competition for people with the skill sets we need," said John R. Chisholm, co-CEO of the Boston-based firm.
He noted that "the compensation market remains very competitive" not only for multiasset-class specialists, but also for senior-level quantitative investment, stressing "we try not to get into bidding wars."
Acadian managed $95 billion as of Dec. 31.
Acadian, like many other money managers, has turned to a variety of recruitment methods to attract top prospects, especially younger people.
Some managers are beginning to court potential recruits as early as their sophomore year in high school to encourage them to consider investment careers, while others maintain extensive college and summer internship programs through partnerships with university finance and computer science departments.
Other firms including AQR Capital Management LLC, Blackstone Group LP and Neuberger Berman Group LLC also readily transfer employees between different areas in their companies both to fill vacancies and to staff up new teams and to help their workers find their niche.
New York-based Neuberger Berman, for example, "curates employees' careers very deliberately," said Heather P. Zuckerman, managing director and chief of staff, adding that the firm is "very proactive" about allowing employees to "move around within the company to find a new job rather than leave."
Neuberger Berman managed $304 billion as of Dec. 31.
Money managers' intense focus on their employee base is part of a wider reassessment of their business models in the face of strong industry headwinds.
"I think the money management industry may look back at 2018 as a pivotal year when everything started to change," said Casey Quirk's Mr. Quirk.
The most obvious sign of change in 2018 was significant cost-cutting by companies, particularly publicly traded managers, which included employee layoffs, after a year characterized by high outflows, poor performance and lower investment fees, especially for large, traditional global money managers, said Mr. Quirk.
"The focus on cost consumed the oxygen in the industry over the last quarter," he said, stressing that while other industries have been laying off employees with regularity, "this is a first in this industry" on a widespread level.
Among money management firms that recently laid off employees are AllianceBernstein (AB) LP (AB), BlackRock (BLK) Inc. (BLK), Brightsphere Investment Group PLC , J.P. Morgan Asset Management (JPM) and State Street Corp. (STT)
"The investment industry is behind the times and resisting change," said Alan Johnson, managing director and president of Johnson Associates Inc., New York, a money manager compensation consultant.
Mr. Johnson said the current "belt-tightening" the industry is undergoing will inevitably reduce the total headcount as managers rationalize and retrench their businesses by shedding "half-hearted" investment strategies, rethinking earlier geographic expansions and renewing their focus on better aligning compensation and incentives.
The result of cost-cutting measures likely will result in an overall 5% decline in money management compensation in 2019, according to Johnson Associates' estimate.
To foster "a culture of innovation," J.P. Morgan Asset Management made "tough decisions" over the past two years including exiting non-strategic businesses, reducing its mutual fund family by 25% and decreasing its office footprint by 23%, said Mr. Willcox. That includes selling off its Brazilian mutual fund business and South Korean onshore funds.
About 100 people were laid off as part of the changes.
"We're looking to get the best ideas out of the smartest people. People want to work hard, have fun while they are doing it and feel good about the culture they are a part of," said Mr. Willcox.
As part of establishing and nurturing a positive corporate culture, money managers increasingly are embracing a more holistic approach to managing their workforce, said Keith Robinson, managing partner of Focus Consulting Group Inc., Long Grove, Ill., which advises money managers.
"From a 10,000-foot view, managers need to know what result they're looking for and who they need to accomplish that. They need the right person in the right job at the right time and to empower that person to grow," Mr. Robinson said.
He stressed that "intrinsic rewards" such as mission, flexibility, autonomy, development, mastery, work-life balance and other aspects of a firm's culture are as important to millennials and Generation Z as "extrinsic factors" including compensation, stock options and promotion.
Quantitative alternative investment manager AQR Capital Management is intent on providing its employees with a culture that "allows you to live a flourishing life and meet your goals in pecuniary and non-pecuniary ways," said David G. Kabiller, co-founder, principal and head of business development for the Greenwich, Conn.-based firm.
AQR's "greatest innovation" has been its success in attracting more diverse, younger employees to challenge "groupthink, which can be dangerous," Mr. Kabiller said. "You need to bring in disruptive people to create a diverse thought culture, which challenges our beliefs."
AQR managed $196 billion as of Dec. 31.
Evolution, not revolution
PIMCO, on the other hand, is conducting "a talent evolution, not a revolution," as the firm adapts to ever-changing markets, said Robin Shanahan, the firm's Newport Beach, Calif.-based managing director and co-chief operating officer.
PIMCO has had strong quantitative investment and technology teams for years, but a new internal goal to embed data analytics in every investment function throughout the company necessitates an increase in PIMCO's bench strength in these areas.
Ms. Shanahan said PIMCO's new in-house talent research team assessed what PIMCO needed to attract the elite talent the firm needs in these two very competitive areas and took the bold move of opening an office in Austin, Texas, in July 2018 expressly because of its proximity to the University of Texas and its pool of potential recruits.
Austin's climate, reasonable cost of living and general popularity "make it easy to recruit people to come to the city," Ms. Shanahan said, as well as to convince UT students to stay in the city and work for PIMCO.
The company will have about 200 employees working in its Austin outpost by 2021. To date, 84 people are working in the firm's newest office, including some existing PIMCO employees who transferred from other locations.
New York-based Blackstone Group aims to retain employees for the long term, possibly for the entirety of their careers, and so is very focused on attracting young workers to join its investment teams.
For Blackstone, "all we have is human capital, and recruiting and retaining the right people is tantamount. We want people to be at Blackstone for 30 years," said Paige Ross, senior managing director and global head of human resources.
Ms. Ross said Blackstone remains staunchly committed to its long-running apprenticeship program, which recruits college students immediately after graduation into training programs in the company's various investment businesses including private equity, growth equity, infrastructure, private credit and real estate.
Blackstone added new initiatives to attract and ultimately recruit more young women and minorities to the firm, Ms. Ross said, highlighting the Future Women Leaders program offered in the U.S., London and Asia, to expose female college sophomores to financial careers through summer internships and eventually recruitment for analyst positions.
Ms. Ross said the success of the women's program convinced Blackstone to offer a similarly structured Future Diverse Leadership program for minority men and women college sophomores in the U.S. in 2016. The program has been so successful that it was recently rolled out in London. The Future Women Innovators program, a technology-focused program, debuted in the U.S. last year.
Blackstone managed $472.2 billion as of Dec. 31.
Neuberger Berman is attracting a younger generation of people seeking jobs in money management and "what they want in a job is much different than what we wanted 30 years ago," said Ms. Zuckerman, adding that Generation Z and millennials are looking for much of a balance between their personal and professional lives.
Ms. Zuckerman said she and her team are striving to meet the work-life expectations of their next-generation employees, such as "real-time reviews. Millennials want reviews more than just once a year and they want open, transparent conversations. As result, we really go overboard in asking for feedback from everyone."
The incoming generation also wants to work and live their lives with "purpose," Ms. Zuckerman said, particularly regarding volunteerism. "We are creating an environment where people don't have to separate their purpose from their work life."