Recruiting Fund Managers: Time to diversify?

Recruiting Fund Managers: Time to diversify?

EMPLOYER ADVICE

March 2018

Recruiting Fund Managers: Time to diversify?

The asset management industry in Scotland – and the rest of the UK, for that matter – is grappling with a problem that cuts to the very heart of its existence.

No, it’s not the pressure on fees. Nor is it investors growing love affair with passively-managed funds.

Fund managers are suffering from a dearth of fund managers.

If not tackled robustly, the problem may persist for many years Betsy Williamson Managing Director Asset Management

to come.

Why are fund managers in such short supply?

Being a fund manager is viewed as a glamorous and lucrative career – certainly within the context of the financial services industry.

Historically, firms have never had a problem attracting the biggest and brightest minds.

But it is not the supply of talented individuals which has caused the current drought. It has been a hiatus in demand following the global financial crisis.

The global financial crisis In step with the near collapse of the markets in 2008, most UK asset managers stopped or at least significantly reduced their graduate programmes.

Many schemes didn’t return to normal levels until 2012 or later.

These short-term decisions have had a significant long-term impact on the industry, as the career path of a fund manager is a particularly specialist one these days.

Gone are the days when a music or physics graduate would transition seamlessly into the world of money management; and rarer still that a chartered surveyor would step up to manage a UK smaller companies fund.

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Recruiting Fund Managers

A Recruitment Timeline For the purposes of illustration, we will assume a fund manager’s career now typically follow this trajectory:

Graduate trainee

Junior investment/financial analyst

Senior investment/financial analyst

Portfolio manager

Named fund manager

The right combination of talent and opportunity could see a graduate become a fund manager in, say, eight or nine years.

Or it could take much longer.

Given that graduate intake stalled in 2008 and didn’t resume properly until at least 2012, we are entering a period where the candidate pool for these roles is extremely restricted.

It follows the same simple logic of a society that experienced no child birth in 2008. It will have no nine-year olds in 2017.

If we look at the chart below, we can see the potential long-term effects of the decision to cut back on graduate programmes and the reverberations further up the talent pipeline.

2027 2025 2023

Talent Gap

2021 2019

Talent Gap

2017

Talent Gap

2015 2013 2011

Talent Gap

Talent Gap Talent Gap

2009 2007 Graduate Trainee

Junior Investment Analyst

Investment Analyst

Senior Investment Analyst

Portfolio Manager

Named Fund Manager

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Recruiting Fund Managers

How to plug the fund manager ‘gap’ 1. Put in place a long-term succession plan for fund managers There is little point in closing the stable door after the horse has bolted, but it is somewhat ironic that an industry which prides itself on both investing at the bottom and investing over the longer term is now suffering from short-sightedness.

This, of course, is not to underplay the huge commercial pressures which were present during 2008 and beyond.

But unless the global financial crisis was viewed as the end of capitalism, it has been a self-defeating move to cut off so definitively the flow of future talent.

This is especially true if we consider the relatively modest costs that graduate programmes incur.

If we experience similarly serious market dislocations in the future, we would all hope the lessons of the past will have been learned.

But we cannot turn back the clock. So what can be done now to solve this problem?

2. Recruiting fund managers externally One solution for any employer suffering from a talent gap is, of course, to go out to the market in search of suitable candidates.

This would be a normal response.

Advantages

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Access to a much wider pool of talent than available internally

Opportunity to add skills missing or underrepresented in current team, e.g. Geographic (emerging markets) or sector (technology) expertise, foreign languages, etc.

May increase diversity of workforce, e.g. Gender, ethnicity, cultural, etc.

Injects new blood into the workplace, and, with it, innovation and fresh thinking

Recruiting Fund Managers

Disadvantages

2008 was a global financial crisis. As such, the gap in fund management expertise is an international one

Looking externally may create internal unrest and instability.

It may demotivate existing employees who feel they are being overlooked. Flight risk may be increased.

External recruitment can be expensive

To be successful in this approach, you many need to look beyond UK shores.

You would also do well to partner with a recruiter experienced in attracting international candidates to the Scottish market.

And you would do well to appreciate the challenges of recruiting internationally and how best to manage these.

3. Promoting would-be fund managers early One person’s problem is another person’s opportunity.

An option you may have is to accelerate the development of talent individuals that already exist within the organisation, whether it’s a junior analyst moving to senior analyst, or a portfolio manager being promoted to a named fund manager.

Advantages

They already know the business, its systems, operational processes and culture

Their promotion, in turn, frees up the levels below them, which are easier (bigger talent pool) and cheaper (lower salaries) to fill

Sends a strong signal to the rest of the business – talent and hard work will be rewarded

Logistically easier. They already work within the company

Cheaper than recruiting a more experienced professional from elsewhere

Disadvantages

They may not be ready yet. You risk creating a high-profile failure

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Recruiting Fund Managers

If people are pushed beyond their current capabilities, it can cause enormous pressure, a build-up of stress and burnout

May be viewed negatively by clients. A 30-year-old running a 1bn plus pension mandate, might be viewed negatively by a trustee twice their age. After all, they are paying for knowledge and experience

If unsuccessful, it can damage your service, reputation and brand

4. Identifying potential fund managers from other parts of your business There may be potential in considering high calibre individuals from other departments within your business.

Applicants from areas such as finance, risk, compliance, audit and corporate governance could be suitable.

A demonstrable enthusiasm for and a commitment to investment analysis/portfolio management would have to be a prerequisite.

Advantages

Many of those outlined within ‘Promoting would-be fund managers early’, including:

They already know the business, its systems, operational processes and culture

Sends a strong signal to the rest of the business – opportunities are open to ALL within the business

Logistically easier. They already work within the company

Cheaper than recruiting a ‘like-for-like’ replacement from another company

Disadvantages

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Leaves another gap within the business, which may prove difficult to fill

Likely to be a steep learning curve for anyone making this switch, regardless how talented and capable they are

Recruiting Fund Managers

A medium-term rather than an immediate solution, i.e. quicker than a graduate but probably slower than an investment analyst

Again, may be negatively viewed by clients

5. Retaining experienced fund managers In the absence of suitable internal or external candidates, the only immediate option you may have is to retain on a longerterm basis your experienced fund managers.

Traditionally many fund managers, when in their 50s and having made their money, choose to step away from the pressures of managing money on a day-to-day basis.

Advantages

Promotes consistency, continuity and stability in the eyes of clients and investors

Retains knowledge and expertise within the business for longer

Is consistent with the longer-term trend of people living – and therefore working – longer

Disadvantages

Could encourage complacency, demotivation and falling engagement – impacting ultimately on fund performance

Stifles innovation and fresh thinking

Creates a general atmosphere of stagnation

Demotivates those below them – ‘dead man’s shoes’

6. Blending experience with talent A more balanced and progressive solution is possible.

Combining the best parts of 3 and 5 (and even 4), it would involve a multi-year handover process, where the underexperienced investment analyst or portfolio manager works alongside the experienced fund manager.

It would be highly structured, with a clear timeframe of when the junior partner would take full and sole responsibility and when the senior fund manager would step down.

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Recruiting Fund Managers

Investing in the future With this problem set to persist over several years, it is unlikely that only one of the solutions outlined above will be enough.

Successful asset managers will be the ones that embrace multiple strategies and approaches.

We do not need to preach to fund managers about the benefits of diversification.

Such an approach will ensure you have the very best talent, safeguard your business against future talent shortages and ensure you gain and maintain an advantage over your competitors.

Betsy Williamson Managing Director Core-Asset Consulting t: 0131 718 4600 e: betsy@core-asset.co.uk

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About Core-Asset Consulting We are an independent recruitment company dedicated to asset management, accounting & finance, asset servicing, legal and the wider financial services sector in Scotland.

A specialist recruiter, our expertise extends across permanent, interim, temporary and contract positions, as well as preemployment vetting and on-boarding services.

Working in close partnership with clients to tailor the most effective recruitment strategies, we have the resources to target exceptional candidates - at home or overseas - and match them to roles that encourage them to excel.

To do so, we put people before profit, service before sales and ethics above all.

High expertise, engagement and value Initially we made our reputation within Scotland’s asset management sector. But the success of our model has allowed us to expand rapidly.

We have developed into the wider financial services market, built an accounting and finance team, established an interim, temporary and contract division, launched a vetting and onboarding service, and expanded into the legal sector.

Helping realise your business grow Whether you’re wishing to fill a specific position, keen to find out about the latest market trends or just looking for advice, we’re here to help.

For more information about the services we offer, please get in touch: +44 (0) 131 718 4600 edinburgh@core-asset.co.uk www.core-asset.co.uk

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CORE-ASSET CONSULTING 37 Melville Street Edinburgh EH3 7JF t: +44 (0)131 718 4600 w: core-asset.co.uk