Money managers turn to job cuts to steady ship
December 24, 2018 | Pensions & Investments
Faced with the weight of fee pressures and industry consolidation, many money managers are quietly cutting staff, either in a pre-emptive attempt to buckle down against headwinds and shift their business focus or more urgent cuts out of necessity, sources said.
"Every single firm is taking a look at costs and strategy," said Michael Fitzgerald, a Boston-based managing director within the asset management practice at RSR Partners, an executive search and leadership consulting firm.
"Some firms are doing it from a position of strength where they know the business is changing and (are) looking at how (to) get ahead of this and structure (themselves). The other firms are doing it out of necessity, whether from pressure on flows, AUM or increased volatility that may have exposed managers living on the effects of market appreciation. They've had to make decisions that are maybe a little more drastic," Mr. Fitzgerald continued in a telephone interview.
When job cuts are occurring, they are "much more tactical or strategic, even surgical, where (managers) are merging certain distribution channels and investment teams as well as (sales) teams," he added later.
In 2018, several managers put dozens, in some cases hundreds, of jobs on the chopping block.
In August, J.P. Morgan Asset Management, New York, said it was laying off about 100 people, representative of 1% to 2% of staff in the J.P. Morgan Chase & Co. division.
The cuts came despite the fact the asset management unit reported $1.8 billion in revenue in the second quarter, up 2% year-over-year. Assets under management in the unit were $2.028 trillion as of June 30, an 8% increase from the year prior, according to J.P. Morgan Chase's quarterly earnings statement. JPMAM managed $2.077 trillion as of Sept. 30.
800 cuts over 3 years
Standard Life Aberdeen PLC, Edinburgh, is in the midst of cutting around 800 jobs across its global business over a three-year integration period related to the merger of Standard Life PLC and Aberdeen Asset Management PLC. The company confirmed the planned job losses in May 2017, just months before the deal closed that August.
Meanwhile, Zurich-based GAM Holding AG announced this month a restructuring plan that will include the elimination of approximately 10% of its more than 900-person staff during 2019. The cuts include previously announced efforts in November to consolidate investment teams across its fixed-income and equities business, a news release said.
GAM faces job cuts as its overall AUM dropped 4.8% to 139.1 billion Swiss francs ($140.3 billion) over the two-month period ended Nov. 30, the money manager said in a Dec. 13 news release, following a period of upheaval at the firm where Tim Haywood, investment director business unit head for the unconstrained/absolute-return bond strategy, was suspended following an investigation, resulting in the liquidation of bond funds.
For asset managers weighing cuts, such decisions primarily are being driven by two factors, said Alan Johnson, managing director of compensation consulting firm Johnson Associates Inc., New York.
"One, is the continual, gradual erosion of fee levels, which reduces revenue," as investor clients move to passive strategies from active, Mr. Johnson said. Additionally, managers might put jobs on the line in response to declining firmwide or product assets, he said.
Johnson Associates published a report in November that predicted there will be asset manager layoffs or downsizings coming in the first quarter of 2019. The moves may come with firms' "recognition of business dynamics and productivity increases/automation," the report said.
Mr. Johnson believes the positions that would be affected the most by cuts are operations, sales and general management roles.
"I think, by and large, the investment side will be protected even though they are more expensive per person … with automation and technology, you don't necessarily need as many people as you needed five or so years ago. I think most of the impact of technology is probably going to fall on operations staff," Mr. Johnson said.
Firms likely will aim to make these adjustments as quietly as possible, he added.
"I think everyone wants to be as quiet as can be. It will be layoffs (and) not filling positions as they open up … a combination of both," Mr. Johnson said.
Johnson Associates' November compensation report also suggested firms will be eyeing costs associated with their locations.
The impact of cost-of-living differences is expected to increase for financial services firms, including money managers, the report said. In fact, "financial services' overconcentration in select cities will diminish," the report predicted. The industry will see "more aggressive strategies to minimize costly locations."
As such, money managers are determining: "how many people do we need, and where do we need them?" Mr. Johnson said in a telephone interview.
Heading to Nashville
In October, the $550 billion money manager reported to the New York State Department of Labor it would be laying off 35 of 244 employees in its White Plains, N.Y., offices throughout 2019, citing the relocation to Nashville, a public notice on the department's website showed.
An AB spokeswoman declined to comment on the layoffs beyond the notice.
While one recruiter shared that she has not seen widespread layoffs at money managers, "there have been a number of organizations that have come up and are doing this. And some are doing it discreetly," said Debra "Deb" Brown, a senior member of the investment management practice at Russell Reynolds Associates Inc., New York.
Generally speaking, however, she said the the asset management industry has been resilient despite headwinds that could drag on costs for firms.
Still, "There is some cutting going on in underperforming active strategies," Ms. Brown said, later adding: "Where you've got a dependence on active strategies, yes, (money managers) are prudent on how they can improve the economics."
Ms. Brown also noted that cuts aren't always indicative of "an overall contraction of the firm," but a reallocation of resources.
In June, it surfaced that Swiss bank UBS Group AG was eliminating at least 100 positions in its asset management unit as it shifted its focus to key areas such as growth in China, as well as passive and sustainable investing, sources told Bloomberg at the time.
A UBS spokeswoman declined this month to comment on the matter, but an October company presentation for investors shows the company has pegged five strategic areas for growth: wholesale and platform services, investment solutions, sustainable and impact investing, China and indexed products, including exchange-traded funds.
UBS Asset Management's total invested assets have grown to 810 billion Swiss francs ($1.065 trillion) as of June 30 from 656 billion Swiss francs at the end of 2016, the investor presentation showed.
AXA lets 200 go
Separately, AXA Investment Managers completed around 200 job cuts in the second half of this year under an internal restructuring, a company spokeswoman confirmed in an email. The cuts, which were initially announced in June, affected roughly 160 positions in France, with the remainder in the U.K.
Savings from the job cuts will go toward AXA's plan to invest around €100 million ($114 million) by 2020 in focus areas, which include alternatives, multiasset and fixed-income specialty investment strategies; ESG integration across investment teams; digital and advanced data analytics capabilities; and quantitative and data science skills.
Katie Vande Water, a Boston-based partner in the financial services practice of executive search firm DHR International Inc., said money managers resorting to layoffs are often doing so to consolidate products — in the process, leaving an investment team or distribution professionals without a place at the firm — or to weed out staff whose performance has been lackluster.