- Layoffs will ramp up across asset management and will continue through year-end and into 2021, according to a new report from compensation consulting firm Johnson Associates.
- Managing director Alan Johnson said employees on the support and operations side of the business, like those involved in processing and lower-level technology functions, will likely be most vulnerable.
- Alternative investments businesses at traditional asset managers are more immune to headcount reduction, he said, pointing to wider adoption of asset classes like private equity and private credit.
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Though US stocks have rebounded significantly from their springtime lows, the asset management industry is still facing challenges. That will lead to firms slashing bonuses and jobs, a closely tracked financial services industry compensation report shows.
Layoffs will ramp up across traditional asset managers and continue through year-end and into next year, according to the report published Monday from New York-based compensation consulting firm Johnson Associates.
The firm forecasts a decline of 10 to 15% in traditional asset management staffers’ bonuses this year compared to year-end 2019. It does not break out a separate quantitative estimate for layoffs in that industry.
The dim projections underscore how asset managers are under pressure as they navigate falling fees for products and thinning profit margins in a highly uncertain economic environment the coronavirus pandemic has brought on.
“This is going to be a very difficult end of the year,” Alan Johnson, the firm’s managing director, said in a phone interview.
Investors shifting out of stocks and flocking to lower-risk, lower-fee products like bonds during the volatility this year has had another negative impact on revenue, he said.
Investors pulled a record $72 billion in net redemptions from US equity mutual funds and exchange-traded funds during the second quarter, according to Morningstar data. Intermediate-core bond funds meanwhile collected a record $23 billion in June alone, in part thanks to the Federal Reserve ramping up corporate bond ETF purchases.
Like other corners of finance, asset managers are reassessing their real estate footprints as a way to cut costs as they have conducted business remotely for the first extended period of this kind.
Read more: Investment manager TIAA is offering 75% of its US employees buyouts and some could get their full salaries for nearly 2 years
“New York, Boston, and San Francisco are unsustainably expensive,” Johnson said, and suggested the current state will push firms to rethink their pricey headquarters and branches in big cities.
Banks and fund managers have been rethinking big cities. AllianceBernstein moved its headquarters from New York to Nashville, Tennessee over the last two years while Goldman Sachs has expanded its presence in Salt Lake City, Utah.
Identifying areas at risk, and some less vulnerable
Employees on the support and operations side of the business, like those involved in processing and lower-level technology functions, will likely be most vulnerable, he said.
The continued impact of automation and technology edging out more manual operations is ongoing and will be seen in reduced headcount in those areas, he added.
Read more: Here’s who’s most at risk once Wall Street kicks off the tidal wave of layoffs many banks had put on pause
As protests over the history of systemic racism in the US have spurred mass protests and a global reckoning in recent months, Johnson said firms should be particularly cognizant of laying off employees in areas of their businesses who tend not to be “the traditional white males” who dominate the financial services industry. Doing so could shrink the population of employees of color who are already so rare in finance.
“That is a very unfortunate byproduct that firms are going to have to manage very carefully,” he said.
Some firms have already said they would cut their workforces. Franklin Resources, which operates the asset manager Franklin Templeton, said in its latest quarterly earnings report in late July that its acquisition of Legg Mason would incur changes including reducing headcount by around 8%.
That reduction does not “involve any Franklin Templeton investment teams or the specialist investment managers that were part of Legg Mason (including distribution),” the report said.
Meanwhile alternative investments businesses at traditional asset managers are likely to be more immune to headcount reduction, Johnson said, pointing to wider adoption of asset classes like private equity and private credit.
One such example he noted was the US Department of Labor’s move in June to allow some professional managers to add private equity investments as a component of some employer-provided retirement plans, like 401(k)’s.
Read more: The US government has pitched a policy that would allow private equity into your retirement fund. BlackRock is salivating at the possibility — here’s how the $7 trillion manager would benefit.
He also highlighted big data and statistics as two areas that are likely to be other bright spots within traditional asset management.
“If it has ‘data’ in the word, you’re probably doing better,” he said.