The search for talented fund managers has been intense for several months with top salaries on offer. But now these professionals have been warned that soaring pay and bonuses prompted by an escalating war for talent could soon come to an abrupt end.
“The war for talent is real, but some of the pricing that people have been bandying around for talent is about to change in a meaningful way'', said Edwin Conway, global head of BlackRock Alternative Investors. “The industry priced up very quickly, but because of the turmoil you’re seeing in the markets, the entire asset management industry is estimating bonus pools to be down quite significantly this year.”
He added: “This continuous upward-bounding leap after leap (in pay) is probably game over. They’ve hit their ceiling because you are seeing firms recognising that their year-end compensation is not at all what they anticipated.”
Some asset management professionals have been able to command significant pay increases when moving to new positions. This has particularly been the case for those working in the hottest areas of the market such as environmental, social and governance-focused jobs and roles in private markets.
Last year, headhunters suggested heads of ESG at asset managers could expect base salaries of at least £150,000. Some firms were offering candidates total compensation packages of up to £500,000 for global positions. Meanwhile, competition for expertise in specialist private markets has intensified to the point those with the right skills and knowledge can command salary increases as high as 40pc, according to recruiters.
A senior client partner within the rewards team at management consultancy, Korn Ferry, Tim Wright said bigger salary budgets at asset managers and certain roles commanding higher levels of pay had led to salary inflation over the past 12 to 18 months.
“Pinch areas continue to include certain technology roles but also ESG and sustainability specialists as well as investment professionals operating across private markets'', said Wright.” He added: “That said, not all firms have followed this trend and there are a number of companies who feel they are now lagging behind the market in base salary levels.”
A report published by Moody’s in May said that despite 2021 being a strong year for European asset managers, the operating environment for companies had altered significantly this year. Headwinds include the war in Ukraine, a worsening macroeconomic outlook and central banks tightening interest rates to tackle rising inflation.
“All of these have increased market volatility and wiped investor confidence, weighing on asset managers’ (assets under management), flows and revenue'', said Moody’s. Wright said the general outlook for the fund management sector is “nowhere near as positive at the moment” as it has been over the past few years. He warned that some asset managers could face pressure from shareholders or remuneration committees.
Wright said: “In times of market downturn, asset management firms quickly turn their focus to cost management and embedding more fixed costs from a higher salary bill will be a tough sell.” Bonuses could also be hit. Wright added that anecdotal accounts pointed to an expectation that pools will be lower at the end of this year due to challenging market conditions and compared to a buoyant 2021 for the sector.
“Incentive spend tends to be correlated with market returns and as a result there is an expectation of a downward trend in bonus funding at this point in time'', said Wright.
He added that while asset managers that have paid out higher salaries cannot take these back when markets become more challenging, one cost control they can still use is to cut their bonus pools. “Higher salaries and higher fixed costs would suggest that downward adjustments to pools when performance dips is highly likely if not inevitable'', he said. (The writer is our foreign correspondent based in the UK)
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