Some of the UK and Europe’s largest fund management houses have seen assets under management shrink this year as volatile markets continue to have a knock-on impact on revenue and profit across the sector.
Now the squeeze is expected to hit bonuses for fund management professionals, with estimates that variable pay for 2022 could be down by as much as 20% compared to last year.
Tim Wright, a senior client partner within the rewards team at Korn Ferry, said “it’s a really difficult time” for asset managers, adding he expects bonus payments to be down between 10% and 20% compared to last year.
“The mood hasn’t improved much in terms of pay and bonuses,” said Wright, who earlier this year predicted variable pay could be hit if the onset of the market downturn at the start of 2022 persisted.
“On the whole, bonus pools are likely to be down for most firms on last year.”
The forecast for lower bonuses follows an October report by Moody’s that highlighted a 10% drop in the collective assets under management for 20 European asset managers during the first half of the year.
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Many firms have recorded steep falls in assets under management this year, driven by heavy investor outflows and market performance amid a backdrop of soaring inflation and rising interest rates.
BlackRock, the world’s largest asset manager, now oversees around $8tn, down from a peak of $10tn recorded in 2021.
Meanwhile, FTSE 250-listed Jupiter saw its assets under management fall 19% during the first six half of the year to £49bn, while Schroders recorded a £21bn drop during the three months to the end of September.
With lower assets under management hitting revenues for fund groups, it has also had a knock-on effect on the sector’s average profit margin for the first half of 2022. Moody’s said this was down by around six percentage points on last year for the firms it included in its analysis.
“Whenever markets are volatile and profitability gets squeezed, we tend to see a significant amount of differentiation between firms [regarding pay and bonuses],” said Carl Sjöström, founder of Viti Solutions, an executive pay consultancy.
Despite the gloomy prediction for bonuses, Sjöström said there are some areas where pay has been largely unaffected by market conditions.
“As always, hot areas where talent is scarce or makes a significant difference will continue to require attractive compensation,” he said.
“Areas that come to mind are ESG impact expertise but also mid to back office roles in risk, technology and process improvements.”
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While bonus payments for asset management staff are expected to be lower this year, Wright said high inflation and the cost of living crisis had prompted fund management groups to “do more than they have historically with respect to fixed pay”.
“Forecast salary-increase budgets are more likely to be in the region of 5%, maybe a little more in places, compared to historic levels of around 3%,” said Wright.
“There is a strong focus here on more junior employees who are likely to benefit more than executives and more highly paid staff, given the relative impact of cost-of-living challenges is much higher on lower-paid employees.”
Wright added that many firms are also supporting employees in other ways, including one-off cost-of-living payments, as well as non-cash-related support such as financial coaching and meal or travel subsidies.
Some asset managers have already announced measures to ease the cost-of-living crisis for staff.
Edinburgh-headquartered Abrdn brought forward a 2023 pay rise for around half of its 5,000-strong global workforce earning under £75,000 to October to “alleviate the cost-of-living concerns”.
Stephen Bird, Abrdn CEO, told Financial News at the time he opted to bring forward pay increases over awarding one-off handouts to staff — a move favoured by some other financial services firms.
Meanwhile, Liontrust also gave staff an “enhanced pay rise” earlier this year, while wealth manager Brooks Macdonald gave its lowest earners a £1,000 pay rise.
NatWest, Lloyds Banking Group and Barclays have also made one-off payments to staff, while St James’s Place, the UK’s largest wealth manager, offered employees earning under £32,500 a one-off bonus.
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