Fund management professionals have been warned that soaring pay and bonuses prompted by an escalating war for talent could soon come to an abrupt end.
“The war for talent is real, but some of the pricing that people have been banding around for talent is about to change in a meaningful way,” said Edwin Conway, global head of BlackRock Alternative Investors.
“The industry priced up very quickly, but because of the turmoil you’re seeing in the markets… the entire asset management industry is estimating bonus pools to be down quite significantly this year.”
He added: “This continuous upward bounding leap after leap [in pay] is probably game over. That’s largely going to be done. They’ve hit their ceiling because you’re seeing firms recognising that their year-end compensation is not at all what they had anticipated.”
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Some asset management professionals have been able to command significant pay increases when moving to new positions, particularly those working in the hottest areas of the market such as environmental, social and governance-focused jobs and roles in private markets.
Last year headhunters suggested heads of ESG at asset managers could expect base salaries of at least £150,000, while some firms were offering candidates total compensation packages of up to £500,000 for global positions.
Meanwhile, competition for specialist private markets expertise has intensified to the point that those with the right skills and knowledge can command salary increases as high as 40%, according to recruiters.
Tim Wright, a senior client partner within the rewards team at Korn Ferry, said bigger salary budgets at asset managers and certain roles commanding higher levels of pay had led to salary inflation over the past 12 to 18 months.
“Pinch areas continue to include certain technology roles but also ESG and sustainability specialists as well as investment professionals operating across private markets,” said Wright.
“That said, not all firms have followed this trend and there are a number of companies who feel they are now lagging behind the market in base salary levels.”
But there are signs the good times could be set to change.
A report published by Moody’s in May said that despite a strong 2021 for European asset managers, the operating environment for firms had altered significantly this year.
Headwinds include the ongoing war in Ukraine, a worsening macroeconomic outlook and central bank tightening to tackle raging inflation.
“All of these have increased market volatility and eroded investor confidence, weighing on asset managers’ [assets under management], flows and revenue,” said Moody’s
Wright said the general outlook for the fund management sector is “nowhere near as positive at the moment” as it has been over the past few years. He warned that some asset managers could face pressure from shareholders or remuneration committees.
“In times of market downturn, asset management firms quickly turn their focus to cost management and embedding more fixed costs from a higher salary bill will be a tough sell,” said Wright.
Bonuses could also be hit. Wright added that anecdotal data pointed to an expectation that pools will be lower at the end of this year due to challenging market conditions and compared to a buoyant 2021 for the sector.
“Incentive spend tends to be correlated with market returns and as a result there is an expectation of a downward trend in bonus funding at this point in time,” said Wright.
He added that while asset managers that have paid out higher salaries are not able to take these back when markets become more challenging, one cost control they can use is managing their bonus pool.
“Higher salaries and higher fixed costs would suggest that downward adjustments to bonus pools when performance dips is highly likely if not inevitable,” said Wright.
This article was published by Private Equity News, part of Dow Jones
To contact the authors of this story with feedback or news, email Sebastian McCarthy and David Ricketts