Salary survey: Investment managers face bonus falls of up to 50%

European investment management professionals in some asset classes and sectors can expect bonuses to fall by as much as 50% this year from last year, mirroring their US counterparts, says a report by the headhunter TMP Executive Search.

Technology, telecoms, private equity, aggressive growth and emerging markets will be the hardest hit. Pure real estate, fixed-income and value firms may have experienced asset growth and suffer minimal bonus declines.

The 2001 report by TMP's investment management team finds that professionals at the senior end of the scale will take a disproportionately large hit in their bonuses of between 25% and 50%. Support functions and junior staff will suffer lower percentage falls.

The report is based in part on discussions with HR executives of leading money management firms in London and New York.

With cash bonuses lower out of necessity, investment management firms can be expected to seek alternative means to keep top performers happy, says the report. These include greater private equity co-investment opportunities, an emphasis on work/life balance issues and an increase in restricted stock and options.

Retail businesses in general are the hardest hit, with nervousness among retail investors resulting in an absence of growth in assets under management (AUM). AUM is still one of the most significant drivers of compensation on both sides of the Atlantic, according to Kirsty McAlpine, partner in investment management Europe for TMP Search in London.

But while institutional business may have had a better year than retail, firms that rely on both distribution channels are now trying to align compensation more closely between the two, the report said. This means the bonus differentials may not reflect the full extent to which institutional outperformed retail.

The US and UK markets have been worse hit than continental European markets, especially Germany. Here changes in regulatory markets produced good results for investment management houses with established domestic operations.

TMP's compensation figures point to a huge discrepancy remaining between top pay at senior levels in Europe and in the US. McAlpine says: &quotUS businesses are quite simply, bigger. If you are in the top tier it's a much bigger market, it's one market, and it's probably cheaper to run a business there."

The figures within Europe at senior levels are wide ranging and McAlpine suggests this is in part because they include a number of very different institutions. She points out that Invesco and Schroders are the only two stand-alone asset management businesses actually controlled from the UK.

The higher end of the bonus sliding scale in London will be at London-headquartered businesses and local ones, rather than for the European senior executives in investment management for the bulge bracket firms, says McAlpine.

While the sharp reduction in bonuses will be painful, it likely to have been anticipated, says TMP. Many firms saw an 'off year' coming and held the line on base salary increases in 2001. CEOs, HR officials and business managers managed expectations downward at every opportunity through the year, says TMP.

'2001 Investment Management Compensation' available from Executive Insights at TMPSearch.com