Fund managers are reducing pay packages and delaying hiring decisions in an attempt to curb costs, as pressure mounts from customer withdrawals and falling global stock markets.
With inflation soaring to its highest level in four decades, putting upward momentum on wages, a number of asset managers are clamping down on expenses to protect profit margins,
Major stock markets have endured a tough year so far, with the S&P 500 index down nearly 12 per cent, while the MSCI All World index has lost 13.5 per cent.
BlackRock, the largest fund manager in the world, reported an 11 per cent drop in assets under management in the three months to the end of June, representing its second consecutive quarterly decline.
The US-based fund group, led by chief executive Larry Fink, said it would postpone hiring for more senior roles and would fill other available positions with less expensive junior employees, in an attempt to save costs.
“We are delaying certain senior hires into next year,” said Gary Shedlin, chief financial officer at BlackRock. “We’re also trying to juniorize a number of other roles where appropriate.”
State Street reported an 11 per cent drop in assets under management in the second quarter compared with the same period a year earlier. The Boston-based asset manager said pay and employee benefits fell 15 per cent. “We have been proactively managing our expenses, including lowering our incentive compensation,” said chief executive officer Ron O’Hanley.
T Rowe Price said staff numbers rose over 3 per cent in the first half, but the investment manager is now sounding far more cautious on hiring, because the number of voluntary resignations in the US fell over this period.
The US fund group’s chief executive Rob Sharps said the decline in the voluntary attrition rate “means our headcount can go up pretty meaningfully”.
As a result, Sharps said he will be “careful” on “the roles that we fill between now and the end of the year . . . unless the market context changes.”
However, companies face the challenge of keeping costs in check while supporting employees through the cost of living crisis.
British investment platform Hargreaves Lansdown made a “breathing space” payment to some lower-paid employees in May.
Asset manager Abrdn announced that it would bump up base salary by £1,500 for all staff paid below £75,000 in October. The FTSE 100 listed company, which reported a £320mn pre-tax loss in the first half, is planning to close or merge about a fifth of its funds to trim costs.
Abrdn has also reduced its headcount by 500 in the past year, largely through selling off non-core businesses and natural attrition. It plans to shrink by another 500 over the next 18 months.
Jupiter Asset Management, which has suffered from high costs and consecutive quarters of customer withdrawals over the past few years, said it hoped to flatten variable pay by the end of the year.
“We are carefully balancing shareholder returns with the need to ensure appropriate rewards to employees,” said Jupiter’s chief financial officer Wayne Mepham.
But the tougher market environment has not just affected fund performance and prompted investor outflows. It has exposed asset managers with higher costs in particular.
“Those companies that started the year with problems now have bigger problems,” said Rae Maile, analyst at Panmure Gordon. “All it has done is crystallised issues that were already there rather than created new ones.”