According to a recent report, it looks like maybe the worm is finally turning for employees in the asset management industry.
The projections in Greenwich Associates and Johnson Associates’ report Asset Management Compensation: Second Choice No More are based on interviews with more than 1000 financial professionals from equity and fixed-income investor groups at investment management firms, mutual funds, hedge funds, banks, insurance companies, government agencies and pensions and endowments in the fourth quarter of 2014.
2015 asset management compensation to be up notably in 2015
The report highlights that asset managers had a very strong year in 2014. Both market appreciation and positive inflows saw AUM grow at traditional firms, and hedge fund AUM also saw increases despite mixed to poor returns for the year. This strong performance has led to notable increases in incentive compensation.
The report projects:
- First, that incentive compensation at traditional asset management firms will move up in the range 5–10%, with the equity sector topping fixed income;
- Salaries across the board will see a boost 3 to 3.5% in 2015;
- Hedge funds that underperformed in 2014 will only pay out incentive compensation that is flat to down 5%, but incentives at top performing hedge funds are anticipated to be up by up as much as 5% on average.
Asset management sector catching up to sell-side as preferred place to work
The positive trends in the asset management industry are increasing the attractiveness of the sector to financial professionals. This is especially true relative to a sell side that is recently seen slashed compensation based on mediocre to poor results, growing regulation and a slipping social status. That said, job turnover rates across the financial sector aren't budging off of historic lows, even though there has been a slight uptick in hiring over the last 12 months.
The report argues that voluntary turnover remains extremely low because financial professionals are worried about job security while the financial sector remains in full cost minimization mode.
Moreover, these trends are dovetailing to lead to an increased focus on compensation based on performance: "To that end, firms are being more diligent and aggressive in separating high-performing employees from low performers and differentiating compensation accordingly. In fact, more than ever before, compensation in asset management is being determined by performance—for both firms and individuals alike."