Asset managers join Goldman, BlackRock in weeding out underperformers

Investment banks are renowned for weeding out underperformers on an almost annual basis; Goldman Sachs cut around 5% of staff in February and Morgan Stanley eliminated 1,600 roles in January for the second year running.

In asset management, performance usually is assessed on a more long-term basis, but fund managers are becoming more ruthless at upgrading their staff. “Asset managers want to be more efficient,” said Iraj Ispahani, senior adviser to executive search firm The Ashton Partnership and management consultants Oliver Wyman. “With the cost issues that most asset managers have, it’s not surprising that they would look to review their capabilities with a higher degree of urgency.”

BlackRock recently said that it was cutting 300 underperforming staff, or 3% of headcount, while also adding 500-600 new hires this year. Man Group, which published its annual results last week, said that the focus for 2013 would be to “selectively upgrade investment talent at GLG”.

Chris Manfield, founder of asset management headhunters Eiger Advisers in London, said that 50% of the work he’s conducting involve clients who “want to upgrade their existing bench, but without publicising the fact”.

“This 'pipe lining' approach is something I specialise in, and is increasingly being carried out in-house by a growing band of forward-thinking asset managers (mainly US), but rarely by less imaginative companies,” he said.

The benefits of replacing a portfolio manager who has become dead weight with a star are obvious, as are the dangers of losing big name money managers. Earlier this month, the high-profile Richard Buxton, who managed the UK Alpha Fund at Schroders, was moving to a role at Old Mutual. Robin Stoakley, the head of UK intermediary at Schroders told the Times in London: “I make no bones about it. We are expecting clients to leave and follow Richard. It would be naive to think otherwise.”

Ispahani said it’s not just money managers, but sales and distribution staff as well who are being held to higher standards. In some cases, operational staff who are being weeded out.

Investment management consultants Casey Quirk highlighted the need for both a large, and competent, sales team in its February white paper on how asset managers to evolve in order survive the changing environment. Successful firms will “seek and retain aggressive distribution leaders,” it said while also growing their teams.

“Firms with large numbers of salespeople have substantially outgrown rivals with smaller distribution group,” it said. Clearly, there’s less and less room for people in asset management not pulling their weight.