Profile Asset Management Market Update, 2017
The following report provides an update on the key trends that we have observed within the Asset Management employment market in Asia. It identifies emerging themes across the industry and details the major factors impacting hiring and talent movement. OVERVIEW The industry is both cautious and optimistic that much of the uncertainty that kept asset managers awake at night in 2016 is behind us. The two macroeconomic events that caused the most unrest – and most lively debates – were the surprise outcomes of the UK’s Brexit referendum and the US Presidential election. Both the UK leaving the European Union as well as President Trump in Washington will affect markets, regulation and the asset management industry. However, the cloud of pessimism that hung over the end of 2015 and throughout much of 2016 has lifted; the industry is looking at opportunities and, of course, for talented individuals to assist in capturing those opportunities going forward. Just as markets don’t like uncertainty, it is also much more difficult to build business plans in that type of environment. In 2016 this feeling led many global groups to put hiring on hold and to question whether new initiatives were justified. In effect, asset managers pushed these decisions into 2017. As a result, we will see increased activity at the start of this year, particularly as Asia is a focus for most firms we speak to, and as the pace of business in the region demands talented individuals to deliver. We wouldn’t do justice to 2016 without highlighting the bright spots. We saw no slowing down of the China market expansion as both foreign and domestic asset managers and SWFs looked to build out product teams and asset gathering capabilities, as well as the back office functions that go hand in hand with the Hong Kong-Shanghai/Shenzhen Stock Connect scheme. Broadly, legal, compliance and risk functions continue to be a battlefield for talent as institutions look to meet increasingly stringent rules from regulators around the world. From an asset class perspective, fixed income, and specifically Emerging Markets Debt, saw significant inflows and therefore a search for talented individuals to both manage money (at the Analyst and Portfolio Manager level) and to asset gather in this space. We have also seen more firms exploring the private credit space, with several groups hiring Portfolio Managers or indeed entire teams to execute on this opportunity. One of the more interesting developments in hiring across the board is that we see many firms looking outside of a “like for like” candidate pool. With firms having to do more with less, asset managers are increasingly looking to individuals with nuanced or diverse backgrounds. We believe this makes for more sustainable teams, and organisations that will be able to withstand any headwinds which 2017 and beyond may throw their way. INVESTMENT EQUITY In research, we see a similar story as in recent years with an ongoing need for analysts across the board. China analysts are naturally in demand, though we see that it tends to be more at the senior end, senior Portfolio Managers or even CIO hiring is more active now than the last few years. This is a result of groups coming into the market and also because several insurance companies are seeking to hire from pure play asset managers. FIXED INCOME As mentioned in our opening to this report, the fixed income space – and EM Debt more specifically – have seen significant inflows over the past twelve months. Hiring in this space has become more competitive. This is most pronounced in the search for China credit analysts. The exponential growth of the onshore bond markets means that there is simply not enough experienced talent. PRIVATE CREDIT Private credit is perhaps the most sought after capability in the market right now. A perfect storm of a low yield environment, continued demand for double-digit returns and risk-averse banks not able to lend to corporates means that the opportunity set is rife. Asset managers are looking for experienced hires and experienced teams. Assuming an increasing amount of capital follows these buildouts, we would anticipate this trend continuing into 2018. PRIVATE EQUITY The themes have remained much the same as last year; China continues to dominate many investment strategies and it still is rather difficult to raise new funds for some parts of the industry. China represents significant investment opportunities, however many feel that good assets are overvalued. The key is to hire the right people to originate the right deals, and therefore the competition for origination staff with a point of difference, may it be sector, geography or deal size, is crucial. Outside of deal teams there remains a need for those with genuine “asset management” and disposal experience, and in many ways these individuals are even harder to identify as they are not easily in our line of sight. HEDGE FUNDS Likewise, we are seeing themes in line with recent years; there are many global funds that are still not committing fully to Asia, and many Asian funds struggling to raise assets of sustained significance. However, the employers of choice for job seekers are the exception to these. Difficult market conditions and a change of emphasis on different roles means that the risk takers are not so sought after as the risk managers and mitigators. We have seen fund’s bolstering infrastructure, risk management and compliance in a bid to both avoid issues in a tough market and ensure that asset raising efforts are not hampered by a lack of institutional quality within these functions. PRODUCT SPECIALISTS Technical skills and greater seniority are becoming more sought after. In part this is a “do more with fewer team members” approach, and in part there is an increasing need for specialists to communicate more effectively with clients and internal sales teams across a variety of strategies. In particular, we see demand for product specialists that have investment backgrounds in the multi-asset space and in alternatives. WHEN THE CLIENT BECOMES THE COMPETITION While asset managers entering Asia will of course always represent competition for existing players, in the past year we have seen increasing activity amongst onshore China groups looking to expand their product and investment capabilities. We have seen difficult markets and fee sensitivity drive SWFs to bring certain investment capabilities in house. Suddenly the client becomes the competition as these large groups look to hire high-performing teams or individuals. ASSET GATHERING While talent in the asset gathering space is always in demand, institutional sales people with not only relationships but also deep technical expertise are in particularly high demand. Gone are the days of simply wining and dining, which has a very similar meaning to the points we made earlier about product specialists in an investment team, sales people must also be more market-savvy. “The process” is beginning to be valued over personal relationships. Other free services around education, whereby clients seek to learn about certain sectors or products, are also demanded even though they are not supposed to be. Several China onshore AMCs have hired international institutional sales people or teams, just as new entrants to the market are looking for experienced talent and groups that have typically been retail focused look to add institutional coverage. That said, there has been an abundance of activity over the past 2-3 years in the wholesale distribution space as the industry focuses on HNW and retail. The direct impact for the asset management industry has been that asset gatherers with proven experience and a track record of success are able to command exponentially better packages than several years ago. Firms that aren’t prepared to pay above market rates may need to consider looking outside the asset management space for talent. Two aspects of this space have seen transformation, which is worth noting as we look ahead. One is the blurring of lines between asset gathering and client servicing. The combination of more demanding clients and fewer approved support head count mean asset gatherers must be willing to roll their sleeves up in this “new normal” environment. Secondly, we also see RFP roles being moved from headquarters out to Asia where experienced, local candidates are able to merge global messaging with the local language or cultural requirements of regional investors. INFRASTRUCTURE HUMAN RESOURCES Last year began slowly for HR as we saw a consolidation of roles in the Human Resources space. However, from mid-2016 on we have seen some buoyancy in mid-level positions (AVP/VP) and for specialist functions in compensation & benefits, and talent management. These two areas we believe will continue to be a focus for firms as the pool of candidates for any given role no longer comprises just financial services professionals. Equally with high calibre talent in increasing demand, retention is of the utmost importance. As with other pockets of the industry, HR on the buy side has benefited from sell-side firm contraction and/or candidate disillusionment with what is perceived to be a less stable environment. Another aspect of the industry that will impact hiring in 2017 is the demand for HR talent with systems experience or operations expertise. As systems, processes and data management go hand in hand with more efficient and streamlined businesses, HR professionals that can demonstrate knowledge in this space will have opportunities for growth and more seniority. LEGAL & COMPLIANCE As expected in a world of increased financial services scrutiny and regulation, the asset management industry hired more in legal and compliance than in any other department in 2016. The stresses and uncertainties of the sell side have augmented the talent pool for legal & compliance hiring in asset management. On the other side of the coin, retention of existing legal & compliance talent is a key priority for all of our clients. The overarching consideration for candidates these days is less about total package (though this of course is still a key driver) and more about stability when considering new opportunities. Looking ahead candidates with RQFII experience will continue to be in high demand, and the Shenzhen-Hong Kong Stock Connect scheme will likewise demand individuals with Chinese language and regulatory experience. MIDDLE & BACK OFFICE Regionally we have seen an increase in cross-pollination of talent from the sell side and from disciplines outside of their immediate functions. Candidates from audit or operational risk have taken on senior compliance roles, while finance and COO team candidates have moved into AML or audit functions. Risk candidates are another in-demand pool of professionals. Unlike what we understand to be the case in London or New York for instance, individuals who have significant Asia experience and can both assess risk but remain business and growth savvy are particularly valuable to asset managers with regional expansion plans. Likewise, Mandarin speakers who have experience in international firms are highly sought after by Chinese AMCs. AUSTRALIA A VIEW FROM AUSTRALIA This was contributed by Susie Moor, the Founder of East Partnership, and our trusted partner in Australia. 2016 has been the year of the Superfund in Australia, with the emphasis on either hiring or driving product development. A number of the largest funds in Australia have recruited new CIOs and senior investment staff as increasing insourcing of investment capability has continued unabated. While this trajectory commenced in the fixed income and real assets space, there is a slow but persistent move into the listed equities market as well. Scale and a (legislated) focus on fees have been the primary drivers for this continued trend. In the broader market, there has been a real focus in a couple of areas. Firstly, in the listed equity space, there has been a continual product evolution. With the increasing use of passive funds, there has been a move towards the creation of alternative alpha, resulting in the creation of differentiated funds that could then attract a differentiated fee. As such, there has been a push into mid cap, micro cap, concentrated and absolute return funds, with many of the existing larger investment houses using their existing teams to deliver new product. Debt funds are also having their time in the sun. Their consistency of returns in increasingly volatile equity markets is becoming more appealing. There has also been a continued drive into the retail and high net worth market by the larger fund managers that have traditionally focused on the institutional space – either directly or through a LIC. With an increasing number of Australians managing their superannuation directly (approximately a third), this channel is less focused on fees, and is more focused on absolute return, and as such it is proving to be a more profitable segment of the market. We would anticipate more of the same in 2017. Australia is watching with interest the change in administration in the US, and the impact it may have on Australia’s largest trading partners. It should prove to be an interesting year. UNITED KINGDOM A VIEW FROM THE UK This was contributed by Basil Reid Thomas, the Founder of Valentine Thomas & Partners, and our trusted partner in the United Kingdom. This is almost certainly the least predictable time in living memory with all manner of pollsters, pundits and economists getting it badly wrong. The lesson from 2016 has been to expect the unexpected. Not only have we seen the UK vote to leave the EU, the US presidential election produced an even more surprising result. And with the political establishment under siege in the Western world, there is no shortage of opportunity for further surprises in 2017 with elections taking place in the Netherlands, France and Germany. Despite all of this, the FTSE 100 ended last year at an all-time high, boosted by a surge in mining companies and overseas earners and hopes of a spending spree by the US President-elect. So what does 2017 hold in store for markets? The performance of active equity managers in 2016 was, on average, pretty woeful. Likewise, it’s been a year to forget for many hedge funds. Both will be hoping for better stock picking conditions as the effects of central bank stimulus weaken. In the UK, we are certainly going to see a rising rates environment with inflation climbing following the depreciation of sterling. Expect to see further consolidation and streamlining following Janus and Henderson’s transatlantic merger, Amundi buying Pioneer, Allianz’s acquisition of Rogge Global Partners and the coming together of Baring Asset Management and Babson Capital. Total median pay for asset managers has dropped for the second year in a row as rising costs and declining profits increase pressure on firms to cut compensation. Many firms have recently introduced restrictions on pay, with Deutsche Bank announcing it was paying ‘doughnut’ bonuses for its top managers, while Aberdeen Asset Management has frozen salaries for senior employees. As in recent years, recruitment in the UK had been characterised by replacement hiring, with businesses pushing for increased productivity from their current employees rather than creating new roles. In terms of front office hiring activity, 2016 saw a number of high profile CEO and leadership appointments and, on the investment side, increased hiring across alternative asset classes. We have seen high levels of activity across institutional distribution (spanning sales, relationship management and consultant relations) and this will continue throughout 2017.