Top 400: Managing talent in a new world
Tim Wright says agility and innovation will be crucial to attracting and retaining key personnel in the asset management industry
Asset management CEOs around the world are bullish about growth opportunities over the next three years. Global assets under management are expected to exceed $100trn (€89trn) by 2020, up from $63.9trn in 2012. This confidence, however, is tempered by concerns over fee pressure driven by the growth in exchange-traded funds (ETFs) and other passive funds, and the ability of firms to stay ahead of their competitors in terms of products, talent and technology.
PwC’s recent Global CEO survey demonstrated that more than a quarter (28%) of CEOs have entered a new industry sector over the past three years, while a further 18% have considered doing so. We have seen asset managers disrupt banking by, for example, acquiring portfolios of real estate loans and lending to corporates. Alternative asset managers have broadened their product ranges to include private lending arrangements – primary securitisations – and off-balance-sheet financing.
Diversification by both territory and business activities will continue to drive growth. To make the most of the opportunities presented to them, firms must be able to attract people who have the required skills, and be capable of persuading them to join and remain with them.
It is widely recognised that the term ‘talent’ in an asset management business stretches beyond the population of fund managers and into the areas of strategy, distribution, risk and control. It is no longer tenable to hire the best managers and assume the rest of the business is fit for purpose. A holistic view of the recruitment, retention and development of talented individuals is a necessity.
The future talent pool for the global asset management industry will be diverse in terms of geography, skills and expectations. Understanding what employees are looking for in an employer will form the backbone of a successful people strategy.
Asset management is a people industry with most of the value tied up in the talented individuals working within organisations. The flip side of this is that investing in recruiting and retaining talent is often the single largest cost for a business. Without achieving a sustainable return on this investment, businesses will struggle to deliver acceptable returns to shareholders, which will in turn make it more difficult to continue to invest in talent.
The employee proposition should represent and support the business ethos and strategy. A well-designed remuneration package can play a big part in delivering a business’s long-term goals. In this industry, a poorly designed remuneration package can be catastrophic.
The areas toughest to address include:
• Incentive funding approach: is there a single bonus pool that gets allocated to all or are there separate arrangements for teams or individuals?
• Performance measurement: how are objectives set for different groups? Should there be common performance measures or should these be tailored?
• Fixed and variable pay mix: to what extent should a firm compete on salaries or rely on the attraction of more volatile but potentially more lucrative bonus and incentive opportunities?
• Short and long-term pay mix: do I pay my people today for what they deliver or should I pay them over time? If the latter, what do I do in the meantime?
Several external pressures complicate matters. Arguably the largest of these is the increasing regulation of remuneration practices across financial services throughout Europe. Although originally aimed at the EU banking industry, these rules are now engulfing asset managers through a steady but relentless wave of changes, giving rise to a number of fundamental questions that must be addressed.
Do you operate global or local policies? Many of the future growth prospects for the industry will arise in new markets, therefore there is a need to be competitive in multiple geographical talent markets. It is often seen as desirable to operate a single global remuneration policy across an organisation but how can firms that use this unified approach be competitive in all markets? As an example, if regulation constrains the way in which you can pay people in one territory, is extending these constraints to other territories a price worth paying to retain a global approach?
How do you deal with multiple conflicting regulations? We are now at a point where there are numerous different regulations, with specific pay rules that look similar yet operate differently. If one piece of regulation requires you to align the reward of your fund managers with their clients through linking it to fund returns, but another requires you to align the same individuals with your own shareholders through shares in the company, how can a reward programme be constructed that meets these conflicting requirements in a way that can be explained to your people?
How do you differentiate your offering? Over time, regulation is limiting the use of variable pay with the full flexibility that has been possible in the past. With less in their financial toolkit, firms are investing more time and money in the non-financial aspects of the employee proposition.
There has been significant investment in culture programmes, training and development programmes, while there has been improved communication of career opportunities and progression within firms, including a focus on succession planning.
Finally, firms are facing increased pressure in the disclosure and transparency of pay practices. Fund managers are becoming increasingly vocal about the approach investee firms take to executive reward. Are these fund management firms practising what they preach or are they content to take an approach to their own remuneration that may not be best practice? Either way, without transparency on these issues, firms run the risk of being accused of double standards and will need to be ready to respond.
The asset management industry faces fantastic opportunities but firms need to work hard, be agile and innovate when it comes to talent.
Tim Wright is asset manager reward leader at PwC