Fund management jobs worldwide are under threat and many staff have begun 2019 by clicking furiously on recruitment ads and getting in touch with headhunters.
Several of the best-known investment companies, including BlackRock, State Street and AQR, have announced large redundancies. This follows a handful of job-cut announcements by rivals last year.
Given the horrendous 2018 endured by asset managers, further lay-offs are expected.
“At times like these, cutting jobs can often be easier than cutting pay,” says Stuart Duncan, an analyst covering financial services at Peel Hunt, the research group.
“Costs tend to trickle up when things are going well but when you see where markets are now, fund companies will inevitably look very closely at spending.“A big chunk of asset managers’ cost base is staffing. It is not surprising they will be reviewing who they need.”
Investment industry spending has risen steadily. Between 2007 and 2017, costs for North American asset managers increased by an average of 5 per cent a year, and 6 per cent in the final 12 months, according to McKinsey, the consultancy. European managers’ spending rose 5 per cent in 2016-17.
Increased expenditure was mostly hidden by managers’ asset growth, which brought higher revenues and helped protect profit margins. After last year’s heavy outflows, though, the omens are poor.
Research by Casey Quirk, the Deloitte-owned consultancy, showed that staff pay and benefits accounted for 72.4 per cent of asset managers’ costs on average in 2014. This fell to 69.7 per cent in 2017.
Jonathan Doolan, the company’s head of Europe, Middle East and Africa, says expenditure will still be pruned. “We will see a restructuring of the workforce,” he says. “This will be manifested through reducing legacy roles and starting to define and fill new roles to manage businesses more efficiently,”
He adds that staffing generally costs more as a proportion in the US compared with Europe because pay is typically higher there. European managers also have more operational and regulatory hurdles.Not all redundancies are driven by costs. In some instances, companies are pushing ahead with long-term plans to reposition themselves for an increasingly technology-driven future in which certain human skills are not needed.
BlackRock became the latest group to announce lay-offs. This month, the world’s biggest money manager said it would cut 500 roles to free resources to use on new priorities. The redundancies amount to 3 per cent of the New York group’s 14,900 global workforce. The company stressed that headcount would still be about 4 per cent higher than last year.
In a memo to staff, Rob Kapito, group president, said BlackRock would redirect savings from the lay-offs to priority areas for the business, including factor investing, exchange traded funds and liquid alternative strategies. The $6tn fund group is also planning to invest in technology and distribution in new markets.“The changes we are making now will help us continue to invest in our most important strategic growth opportunities,” Mr Kapito wrote. “While key competitors will be playing defence, BlackRock is continuing to invest in the critical strategic initiatives that will fuel our growth in the years ahead.”
In its annual results last week, BlackRock set aside $60m for restructuring.
A few days later, State Street Corporation, the Boston custody bank with a $2.8tn asset management division, said it would axe 1,500 employees, including 15 per cent of senior managers.
Ron O’Hanley, State Street’s chief executive, who previously led the fund management division, provided an update last month on the group’s Project Beacon, which aims to save $550m with staff cuts and more automation.Quantitative hedge fund AQR, another high-profile US investment company, also said it planned to cut jobs. The Connecticut group is set to trim its headcount of more than 1,000 people by a low single-digit percentage, according to a person familiar with the matter.
The company, which manages about $226bn, suffered large losses on most of its biggest public funds in 2018. “We have experienced record headcount growth over the past three years, including 2018,” the company said. “Recent small reductions in headcount reflect the need to balance our workforce growth with the current needs of our business.”
The US job cuts followed announcements by European managers. In June, Axa Investment Managers, the €740bn fund arm of the French insurer, said up to 210 jobs were at risk, amounting to a 9 per cent drop in headcount. It has since said the number is likely to be lower.
Axa said the cuts were part of a plan to free €100m to invest in the business by 2020. It aims to improve in four areas: alternative investment, responsible investment, data analysis and quantitative investment.
At GAM, the crisis-hit Swiss manager, acute short-term pressures have forced bosses’ hands. A succession of damaging revelations culminated in GAM suffering heavy redemptions, an 80 per cent share-price fall and the departure of its chief executive.The group then said it would cut its 900 staff by 10 per cent. This followed a previous announcement that GAM would shed 10 per cent of its 188 investment professionals. The company said it aimed to save at least SFr40m ($40.2m) by the end of 2019 and the plans were designed to “support profitability and shareholder value in the near-term”.
Dean Frankle, principal at Boston Consulting Group, says he expects plenty more fund managers to announce savings. “Most firms have ample opportunity to cut costs and reap substantial rewards. We see a wide disparity in efficiency between top, middle and bottom performers,” he says.He says some managers will still put off the difficult decision. By his analysis, 80 per cent of investment companies that five years ago were in the bottom quartile for profit performance still languish there. “Many asset managers have not yet noted the importance of cost management,” he says.
Mr Frankle adds that successful cost-cutting should have an effect within six months and be completed within 12 to 18 months
Christian Edelmann, co-head of Emea financial services at Oliver Wyman, the management consultancy, also expects further lay-offs. He says many long-term plans will look less at spending and more at how a company can adapt to industry trends.
“It’s all about who has the skills for the future in your existing workforce,” he says.
“We would say 30 per cent of workers have the skills for the future, another 40 per cent will need to be retrained and the rest will not be able to be retrained.
“That’s where the redundancies come from — it’s primarily a shift in skills.”
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