Pressure on asset management firms to cut costs is hitting portfolio managers in the wallet. After years of double digit growth in bonuses, firms are finally putting the brakes on variable remuneration, regardless of revenues.
Large asset managers have continued to hire throughout the past 12 months, and the industry appears upbeat about revenue prospects for 2015. However, while asset management may be a stable career option compared to investment banking, bonuses are nonetheless heading downwards.
“2014 was much more subdued than previous years and most asset managers are facing pressure to cut costs. Bonuses are an obvious target,” says Tim Wright, director and head of the asset management remuneration practice at PwC. “There won’t be any radical cuts and some firms will keep compensation stable. However, after three years of increases this will be a disappointment for many.”
Asset managers' results reflect a desire to hire, whilst paying less. Aberdeen Asset Management, which saw £4.8bn in assets under management disappear in the final three months of 2014, reduced average compensation to an average of £126.6k last year (from £137.1k in 2013). However, Aberdeen added nearly 400 employees over the year.
Elsewhere, Blackrock hired an additional 800 people in 2014. It increased compensation costs by $1k per head to a $313k average. However, Blackrock cut bonuses within this total. Meanwhile, J.P. Morgan’s 4% uptick in pay to $257k on average appears generous, but follows a 9% increase in AUM.
Last year, the bonus pool at 50 of the largest fund managers increased by 10% and salaries were up by 4%, according PwC. Wright says that salaries have increased marginally, but not by enough to offset the slight downward trend in bonuses. Overall, he predicts that fund management bonuses will be flat or down this year, although a few people with "multi-asset experience" will get more.
Headhunters predict that disgruntled fund managers will quit their jobs once bonuses hit. However, the desire to move on may be tempered by deferrals, which count for a growing proportion of fund management bonuses. In Europe, regulations due to be imposed in 2016 require at least 40% of bonuses are deferred for three years (or 60% if the bonus is unusually high). What’s more, portfolio managers are being asked to invest an ever greater proportion of their bonuses into their own funds.
However, all of this has to be framed within the context of how the global financial crisis hit fund manager pay, says James Dewhirst, director of recruiters Investment Management Partners. “It was only a few years ago that fund managers were receiving next to nothing, so they’re going to be mindful of this before venturing out into the job market.”