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Russell Reynolds Associates’ Study Reveals Highly Competitive Recruiting Environment, Increased Turn

Date: Monday, December 4, 2006
Author: Businesswire.com

NEW YORK--(BUSINESS WIRE)--The recruiting environment among senior professionals in the asset and wealth management industries was particularly strong in 2006 – a year that saw brisk turnover among all functions as well as rising compensation levels, particularly for proven producers, according to a report by global executive search and assessment firm Russell Reynolds Associates. In fact, the intensity of the competition for investment professionals (due to both organic market demand and the lure of hedge funds), has forced investment firms to look beyond traditional talent pools – a strategy that brings with it both significant rewards and costly risks.

Released today, the tenth annual Asset and Wealth Management Recruiting Trends Report is a qualitative and anecdotal study that reflects first-hand observations of industry leaders, prepared by the global partners of Russell Reynolds Associates’ Asset and Wealth Management Practice.

“This past year has been marked by an industry-wide, global focus on convergence,” said Jeff Garrity, managing director and head of Russell Reynolds Associates’ Americas Asset and Wealth Management Practice. “Traditional and alternative investment houses are evolving and adopting each other’s product and investment strategies, blurring the once clear lines that separated the two. The resulting demand for broad-based professionals who can straddle differing investment strategies has never been greater, and the war for talent has never been more contentious. As a result, many asset and wealth managers have begun to widen their scope, seeking more available, affordable talent from outside traditional talent pools in analogous industries. It’s a risky, but necessary strategy, likely to continue in 2007.”

Top 10 “Hot Spots”

In addition to ushering in the year of the broad-based investment professional, 2006 also saw some notable pockets of rising demand, compensation and emerging industry trends. These asset and wealth management “hot spots” included:

1. Alternative Investments Changing the Face of Firms:

  • Equity shops responded to the global lure of alternative investments by establishing their own alternative lines – a move designed to satiate investors’ desire for higher returns and retain alpha talent.
  • Whether such disparate strategies can co-exist, however, remains to be seen as some houses are struggling with conflicts in firm culture and direction.
  • To attract portfolio managers away from hedge funds, firms are further altering compensation to offer a percentage of net profits and/or have allowed top performers to invest in firm hedge, private equity and real estate funds – sometimes even matching contributions.

2. Convergence Causing Confusion:

  • This equity product evolution, along with a corresponding alternative migration into equity offerings has blurred the distinction between traditional and alternative.
  • Long-only asset managers have embraced short strategies; private capital firms launched into hedge funds and vice versa; hedge funds launched fund of funds and grew portfolios into the commodity, real estate, and infrastructure sectors.
  • Convergence has put increased pressure on operational and IT groups, increasing the demand for programmers and accountants.

3. Real Estate Reigns Supreme:

  • Real estate assets had a blow-out 2006, realizing double-digit returns. As a result, demand for talent rose dramatically causing a limited executive supply.
  • Real estate professionals were not only in demand from U.S. firms, but also from firms around the globe who wanted “feet on the street.”
  • As a result, professionals saw rising compensation, with bonus pools up at least 15% for teams managing core strategies and up more than 20% for those managing opportunistic strategies.

4. Widening the Net for Wealth Management:

  • A new generation of sophisticated high-net worth clients from U.S., European and emerging markets began demanding trusted advisors fluent in all aspects of stocks, bonds and alternative markets, who can also handle tax issues, estate planning and liquidity needs.
  • Finding this type of professional, who also has an understanding of the local culture and network, has been extremely difficult, as professionals who can move seamlessly between traditional and alternative strategies are in short supply.
  • As a result, many wealth managers are seeking more affordable candidates in like industries (insurance, banking law, accounting, etc.). Results, however, have been mixed.

5. Spanning the Alpha, Beta Space:

  • In the institutional market, the separation of alpha and beta sources is having an increasingly significant impact on recruitment, as it has heightened demand – and industry-wide competition - for broad-based investment professionals who can construct portfolios spanning traditional, alternative and capital market products.
  • Needing fewer, uncorrelated, alpha sources, plan sponsors, endowments and foundations are driving investment thinking away from a contained style box framework, and as a result are influencing the structure of investment organizations.

6. The Power of Pension Reform:

  • Liability driven investing (LDI) in the U.S. has finally picked up the momentum it has experienced in Europe over the past several years.
  • With pending changes from FASB impacting pension accounting, funding pressure from the Pension Protection Act and the widening gap on corporate balance sheets, firms are seeking professionals with derivatives structuring and plan design expertise.
  • The Pension Protection Act has further encouraged employers to take a more active advisory role in their employees’ retirement planning.
  • As a result, securities firms, insurance companies, investment organizations and banks are all competing to provide advice and find talent that can help them structure and deliver solutions.

7. The Baby Boomer Boom:

  • The willingness of the aging baby boomer generation to pay a premium for expertise fueled an increase in post-retirement advice.
  • Major industry players started to pursue sophisticated product alternatives including unified managed accounts wrapped with structured/underwritten products to hedge against purchasing power/inflation concerns.
  • The introduction of sophisticated offerings could open the door for new players in this sector. In an effort to protect against defecting talent, larger firms are beginning to put in place more defensive compensation packages for 2007, including deferred compensation.

8. Sourcing for Succession:

  • In terms of general management, continued increases in regulatory expenses has led to a number of founder succession searches, as entrepreneurs recognize the need for new skill sets to match a more competitive market.
  • Good news has also brought succession to the fore: with a third year of improving profits, firms are in a solid position to address long-term growth, retention and succession strategies.
  • Compensation has played a big role in retention among managers: firms are restructuring packages to offer restricted stock grants, longer vesting periods and more restrictive non-compete and non-solicitation clauses.

9. Equity Peaks:

  • Following a couple of quiet years, 2006 saw an up tick in demand for mutual fund managers. It also saw aggressive recruitment of individual equity portfolio managers and teams, with demand highest for value-oriented, international and quantitative investors. The long anticipated inflection point of growth over value equity has finally arrived and it is being manifested in recruiting mandates.
  • This year, cultural fit joined performance as a key factor in recruitment and retention, as professionals were attracted to pure investment environments where they could work in small teams.
  • Compensation held steady at last year’s lofty levels with pay-for-performance remaining the strategy of choice.

10. Risk Management Remains Relevant:

  • While movement among senior professionals slowed, competition remained intense for the most experienced risk managers capable of anticipating the changing regulatory and compliance landscape.
  • As demand outstripped supply, firms looked for talent outside of traditional pools: in law firms, banking regulatory agencies, the SEC and the Attorney General’s office.
  • The expansion of regulatory scrutiny into areas that have traditionally faced less regulation, like hedge funds, continued to keep compensation high for risk managers - up 25% in 2006.

“Convergence in the marketplace has and will continue to lead to more cannibalization of top talent, as hedge funds, mutual funds, wealth management companies, etc., begin to seek the same cross-functional skill sets,” concluded Garrity. “Continued projected convergence in 2007 will only lead to more demand for alpha talent. The era of the broad-based investment professional brings with it the promise of increased competition for talent and, in turn, rising compensation, globally.”

The report also provides an overview of varying global realities and regional differences in the asset and wealth management industries. More specifically, it details hot spots specific to the U.S., Canada, Mexico, the U.K., France, Germany, the Netherlands, Poland, Australia, China and Hong Kong, India, Japan and Singapore. We welcome you to visit us online at www.russellreynolds.com where the full report can be found.

About Russell Reynolds Associates

Russell Reynolds Associates is the most trusted name in global executive search and assessment. Through a global network of 37 wholly owned offices, the firm’s more than 275 professionals conduct senior-level search and assessment assignments in a range of industries for public and private organizations of all sizes. With its one-firm culture, deep knowledge of major industries and unwavering commitment to client service, Russell Reynolds Associates is uniquely qualified to help clients find the best leaders. The firm’s web site is www.russellreynolds.com.