Juniorisation comes to asset management, as pay tumbles
The buy-side is no longer a refuge for seasoned investment professionals. Asset managers are cutting pay and headcount as revenues remain elusive and costs are still sky high. For juniors, however, this is an opportunity.
Asset managers are likely to cut the bonus pool by 10% this year, and are looking for other ways to cut costs going into 2017 – most likely through headcount reductions, according to a new report by Greenwich Associates and Johnson Associates. Firms are still trying to keep hold of high performers, but elsewhere jobs are likely to be cut and asset managers are handing over more responsibility to younger employees.
“Younger professionals are already finding new opportunities for growth in what is otherwise a very challenging environment,” said Francine McKenzie, managing director at Johnson Associates.
While investment banks have fully embraced 'juniorisation' - replacing expensive senior traders with cheaper, tech-savvy juniors - asset managers tend to fall back on experience. Richard Buxton describes fund management as the “antithesis of the trading game at a bank” and that the best fund managers “tend to be older and more mature”.
The admittance, therefore, that there are plenty of mediocre people who could easily be replaced by younger, lower-paid employees is a culture shift.
Staff costs remain a potentially huge drag on profits. The average pay for an equity professional in a mutual fund is $770k, according to the report, while fixed income focused portfolio managers earn an average of $450k.
There's a clear need for asset managers to cut back. Mckinsey has predicted that 30-35% of asset managers’ profits could be wiped out over the next three years. They’re also weighed down by regulatory costs, says the Greenwich Associates and Johnson Associates report. Last year, pay was cut by just 5% - despite the fact that pressure was building to chop compensation costs further. In 2016, asset managers won't be able to resist wielding the axe further, it suggests.
In comparison to the sell-side, though, asset management remains an alluring place to work. People are still making the switch, with pay “at least equal” pay and a “much better quality of life” on offer, says Kevin Kozlowski, an analyst at Greenwich Associates and one of the authors of the report.
It’s easy to see why – pay for traders on the buy-side has increased to $340k in fixed income and $290k in equities. Research analyst compensation has also gone from $490k to $550k in equities and from $240k to $270k in fixed income.
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