Either stoically optimistic or complacent, the executives of funds management businesses do not believe the financial crisis will threaten their businesses, force them to overhaul their investment strategies or cut headcount, an analysis of a global survey of funds managers by FS Associates finds.
The survey, entitled The Global Money Management Industry’s Response to the Financial Crisisand issued by FS Associates, a consultant to funds management businesses, collected responses from nearly 80 boutique and large multi-asset management firms predominantly based in the United States, Canada, Europe and Asia. All firms ran institutional money and held a minimum of $500 million under management, and submitted responses in the first 10 days of November 2008. None were hedge funds or private equity firms.
FS Associates found none of the respondents thought their business would be in a worse position after the crisis than before it hit. In the zero-sum game of funds management, this consensus opinion was “far too optimistic,” the researcher writes.
As much as 82 per cent of respondents said they would be stronger than most of their competitors, while 18 per cent predicted they would be no worse or better off than their industry peers.
“While it is not new to us that money managers have the tendency to overstate their capabilities, we did not expect to find 82 per cent of the firms participating stating that their strategic measures taken to cope with the financial crisis would allow them to be better positioned than their competitors.
“It can be expected that few managers would want to predict that, despite their best efforts, they will come out on the losing end.”
FS Associates noted that this optimism could hinge on their stated commitments to retain talent during the crisis, rather than laying staff off during the down trend.
Even as assets for most managers have shrunk during the turmoil, 26 per cent of respondents said their businesses were adding staff, while 49 per cent said they had not made, or expected to make, significant headcount changes. Just 9 per cent said they had already cut headcount.
FS Associates saw these results as “another sign that the industry has not yet fully recognised the negative impact the financial crisis may have on individual firms”. This unawareness could be due to cost-efficiency plans enacted as the crisis began to deepen, or, conversely, the full impact of the downturn on the profitability of firms had not yet sunk in.
If the surveyed firms were to increase headcount, 67 per cent said they would add investment management staff, while 56 per cent would focus on marketing and business development and 36 per cent address client services.
That manufacturing was flagged as an area of potential expansion surprised FS Associates, which felt that any shrinkage of assets under management should at least result in a freeze of fixed costs, such as investment research.
If the firms decided to cut roles, 74 per cent said they would zero-in on operations and administration departments first, while 43 per cent opted for investment management. FS Associates saw the concentration of lay-offs in one department as cause for concern.
“If headcount decreases are imminent, would they not be considered to be affected across the board?” the firm wrote, questioning whether it was in the respondents and clients’ best interests to gouge the back office while sparing other teams.
The indication that manufacturing roles would be cut before marketing positions suggested that strong “rainmakers” were considered more important to the viability of some funds management firms than manufacturers.
FS Associates concluded that the managers’ overall reticence to reduce headcount meant “the industry will need to become more realistic and thoughtful about trimming the fat”.
But headcount was not the only part of managers’ businesses that would apparently remain largely unscathed.