The investment bankers are coming. As more make the move across to the buy-side, the dominant and aggressive personality types who have typically found a happy home on the sell-side are shaking up the culture in asset management – and incumbent fund managers are not happy.
“It’s become a lot more unpleasant place to work over the past couple of years, and frankly I’ve had enough of it,” bemoans one soon-to-be ex-fund manager. “People from investment banks fall into two types – aggressive, deal-focused salesmen with no appreciation for the subtleties of relationship building, or very quantitative product people who question every detail.”
The exodus from the sell-side has been underway since Lehman Brothers’ collapse in 2008, but in recent months asset management has really been billed as the place to be. Morgan Stanley CEO James Gorman predicted that asset management will become “the single-largest segment of financial services”, while Michael Faissola, formerly head of Deutsche Bank’s rates business, now leads its asset management business. PwC thinks assets under management will swell to $100 trillion by 2020.
In short, as investment bankers become ever-more desperate to find alternatives, asset management seems like a more stable employment option.
Asset management more attractive to investment bankers
“In the past, asset management was the place to go if you couldn’t hack in in investment banking,” says Shiv Taneja, managing director of asset management research firm Cerulli Associates. “We’re hearing a lot of people in asset management carping and whining about the invasion of aggressive banking personalities who don’t understand the long-term nature of the industry they have a new-found love for as their traditional employment options shrink.”
Taneja says that investment banking personalities are infiltrating ever-more diverse roles in asset management. There’s only a small chance that traders can make the move across to portfolio management – star fund manager Neil Woodford says asset management is the “antithesis” of banks’ trading desks – but there are more people moving across to sales, structuring complex derivative products and, latterly, from operations into securities services.
“If you move from investment banking operations into custody or securities services, you’re likely to get a pay cut. This usually means that ambitious banking types apply a cut-throat attitude to even relatively mundane back office jobs in order to advance their career,” he says. “A lot of the quantitative talent that was recruited by the banks is also in demand on the buy-side.”
The closing pay and bonus gap
Another reason for the switch is the ever-more complex pay structures at investment banks. In theory, investment banks have simply side-stepped regulation of bonuses, capping payments and demanding greater deferrals, by raising base salaries. However, more banks are now capping salaries and offering more complex performance-related ‘allowances’ rather than big pay hikes, which could be removed at any moment and are not pensionable.
“A lot of bankers have just decided that the job isn’t worth it any more – bonuses are smaller, but the hours are still brutal – and asset management pay isn’t better, but it’s good enough to justify the switch for a better work-life balance,” says another fund manager who declined to be named.
This year, asset management bonuses have increased by an average of 10-15% and by 20% plus for senior performers, according to figures from compensation consultants Johnson Associates and figures provided by PwC in the UK. In the U.S., average pay for equity fund managers was $660k in 2013, compared to $460k for fixed income professionals, according to figures from Greenwich Associates and Johnson Associates.
Richard Parkhouse, director of asset management remuneration at PwC, says that the remuneration packages on offer in fund management are increasingly attractive to investment bankers.
“It’s clear that a lot of asset managers are doing well currently, and this is still not the case for investment bankers. Despite the uplift in banking salaries, bonus opportunity has diminished and this is not the case in asset management, where bonuses have either increased or remained the same,” he says.