Rise in fund manager moves ‘disruptive’ for industry

The recent increase in high-profile fund manager moves between asset managers creates disruption for the managers, investors and advisors as the industry becomes more global, experts say.

“The fund management market is becoming more global so a high-profile fund manager move is now becoming more disruptive compared to one or two decades ago,” says the recently-appointed Morningstar Investment Management CIO for EMEA Dan Kemp.

When a high-profile manager moves to another firm, there is disruption in the manager’s track record, making it more difficult to analyse their skills and abilities, especially when they inherit funds from the old manager, explains Kemp.

The challenge, however, is both for the new manager taking over a fund, as well as for investors.

“Ultimately from an end-investor point of view when fund managers move from one fund to another that creates confusion. If clients don’t have anyone monitoring their portfolio that has an impact and it’ll cost them money to make changes in their portfolio,” adds Kemp.

For advisors it is also “very disruptive” if they have a large holding with the fund manager, as “there is a high cost implication for moving capital”, Kemp says.

As he points out, “disruptive” moves, such as former Invesco Perpetual fund manager Neil Woodford leaving or ex-Pimco’s boss Bill Gross moving to Janus, for example, can have a significant impact on the firms they leave behind.

Morningstar recently revealed asset outflows at Pimco since Gross’ departure have been worse than expected as the Pimco Total Return fund alone shed more than an estimated $180bn (£116bn) in net assets between mid-2013 and May 2015.

Total firm assets fell approximately 15 per cent from $1.88trn as of September 2014 to $1.59trn as of March 2015, Morningstar data showed.

Though challenges seem palpable, the number of fund managers moving firms keeps rising.

Nick Shires, director at recruitment firm Nelson Scott, says the demand for high-profile, good quality fund managers is “growing rapidly” and has been particularly visible in the past six months as there is “a lot of more money” in the market.

“High-profile fund managers moving at this stage of the market is not unusual as we are seeing a lot of inflows in funds,” says Kemp.

Between March and July is also considered a typical time for people in the fund management industry to move jobs, points out Michael Page’s head of banking and financial services practice Andrew Breach.

Fund management companies are more bullish at this stage of the market cycle and are looking to expand, says Kemp. But he believes that as soon as the market turns, the number of fund managers moving will decline.

Amid the flurry of moves, compensation has risen and is a big factor in hiring, say experts.

Average compensation per employee at global asset managers rose 22 per cent between 2006 and 2014 to an estimated $263,000 (£169,000), marking a decade-long trend, according to research from thinktank New Financial.

Compensation in asset management is also catching up with investment banks. Pay in asset management used to be half that of investment banks. Last year it was more than 90 per cent and if the trend continues, asset management pay will overtake investment banking pay by 2016.

Breach, however, thinks a better salary prospect is not the main driver for a fund manager when deciding to change firm. “Salary is not a major issue, it is more about the platform fund managers choose, where they can make a difference and where they can have more freedom,” he says.

Nicholas Whally, head of wealth and asset management at consultancy firm ADL Partners, agrees, saying that “it is not just all about the money”.

He says: “The wonderful thing about asset management is the constant competition for talent. When a fund provider can match up a really attractive corporate culture combined with a brand, assets and ambition that makes it a very attractive proposition for a fund manager. It takes a number of soft and hard factors that fund managers are looking for.” 

UK pensions consultancy Redington director of strategy Mitesh Sheth adds that often managers are looking for more than a hefty pay packet.

“[Fund managers] can get frustrated by a feeling of carrying others,” he says. “They may want a greater share of the economics than a firm is willing to give them, they may want their name on the door, they may want a smaller fund to replicate the success of their earlier years, they may want less distraction, less politics and every once in a while they are actually pushed out.”

But egos still drive some in the industry. Kemp thinks that fund managers have an “inflated view of their own value” and so they are likely to move jobs for more money or to establish themselves as their own brand.