Buy side professionals that work at bank-owned asset management firms may want to start looking for a new job, based on the compensation trends cited in a new report.
Portfolio managers and traders and the buy side are outperforming their sell-side peers based on a series of quantitative and qualitative career measures, according to a new report from Greenwich Associates and Johnson Associates.
Here are few key points from the report:
-Buy side competition increased approximately 15% in 2012, versus the sell side’s -10to +5% range. The trend is expected to continue with buy-side incentives projected to increase 10-15%, versus 5-10% growth on the sell side.
-In response to the financial crisis, sell side firms have been aggressively controlling costs, which has led to repeated headcount reductions. While cost control is also a priority on the buy side, layoffs have been less pervasive.
-Buy side firms have not been subject to the same regulatory scrutiny on compensation issues, with the exception of asset management divisions of major banks. Independent private asset managers have a competitive edge in recruiting talent.
-In general, buy side firms have escaped the regulatory pressure and public scrutiny that has focused on the banking industry, resulting in higher levels of job satisfaction and morale.
Compensation Trends: Hedge Funds vs. Traditional Asset Managers
“For fixed income professionals hedge funds are the place to be,” commented Greenwich Associates Analyst Kevin Kozlowski. In terms of total compensation, hedge fund fixed-income professionals averaged $1 million in 2012 vs. $460K among fixed income peers at traditional asset management firms. The pay differential increased to about 2.2X in2012 from 1.8X in 2011, according the report. Equity traders and portfolio managers face a different compensation environment so that compensation at hedge funds and traditional managers fell slightly to be roughly at parity from a differential of 1.14 in 2011, with average pay at about $660K in 2012.
High Performers vs. Average Performers
The compensation divide reflects whether a trader or portfolio manager works at a high performing fund or an average performing fund. Among the top- performing “winners” in investment performance, total compensation is increasing about 30 percent year-over-year, while firms with middle-of-the-pack performance experience a lower 10%-15% increase.
While conditions are improving at bank-owned asset management firms, the combination of regulatory pressures and balance-sheet issues has been a drag on compensation and job satisfaction. Due to ongoing issues with regulation and capital availability at banks, independent asset management firms has remained a more attractive option, reports Greenwich and Johnson. Moving forward, asset management firms are expected to keep a close eye on costs and headcount. “Some firms expect turnover to increase form the current historically low levels as job opportunities become more plentiful and gradually returning stability quells the risk of moving,” stated Johnson Associates’ Managing Director Francine McKenzie in the release summarizing the report. As asset management firms proceed with leaner teams into 2014, they need to monitor the balance of business needs with attrition levels, cautioned McKenzie.