The Consolidation of Long Only Asset Managers & its Implications on Recruitment

Coming together: The future of Long Only Asset Management

Standfirst: What does the consolidation of long only asset managers mean for the future of recruitment?

In the long only asset management sector, all the talk in recent years has been about coming together. Smaller and medium sized operations are being swallowed up by the larger players, but in this world of fewer, larger companies, what is the future of recruitment?

First let’s look at that market consolidation. 2016 saw the largest number of mergers and acquisitions for ten years. In 2015 there was $9.7bn worth of deals, but by month 10, 2016 was already approaching that number with several mega mergers. Janus Capital and Henderson who merged $300bn in assets, while Ares Capital acquired American Capital for $3bn.

Consolidation is being driven by a number of headwinds affecting long only asset management. Profit margins are tightening, organic growth is minimal and economies of scale are hard to come by. Brexit and the unexpected result of the General election add to a climate of uncertainty and it is facing growing pressure by expanding interest in passive investment structures. While the last 12 months saw investors channelling $442bn into passive funds, more active traditional stock markets saw capital flowing out to the tune of $534bn.

Furthermore, its troubles may be far from over. The asset management sector’s revenues fell by 5% last year and, according to a study from Morgan Stanley and Oliver Wyman, the sector can expect to lose another 3% by 2019.

The future of recruitment

The immediate implications for recruitment are not good. By July 2016, Goldman Sachs was warning its asset managers that they would have to tighten their belts as they banned all non-essential travel. Across the sector, companies have been cutting their budgets and scaling back their workforces. Funds such as Blackrock and Franklin Templeton have laid off staff.

The consolidation trend is reducing the number of smaller operators, which in turn reduces the amount of jobs available on the market. As firms join up they cut back on jobs. The union between Standard Life and Aberdeen Asset Management, for example, is seeing 800 jobs go.

The continuing fallout over Brexit continues to stoke uncertainty making it difficult for firms to plan ahead. Can they recruit for a more ambitious future, if they do not know how the UK’s future relationship with Europe will look? In an environment in which smaller players are looking towards acquisition recruitment drives are put on hold as they wait to see how uncertainty plays out.

It’s not all doom and gloom. The long only sector may be facing challenges and undergoing a period of transition, but there are still gains to be had. Those who can demonstrate a successful track record will be highly valued as firms look to retain the highest performers. Even so, the uncertainty looks set to go on. The appeal of the low cost and relatively simple model offered by passive fund will grow, and smaller players will struggle. The next few years will see more consolidation as the market continues its transition.

  1. 17th August 2017

    ….other bright spots might include the effect of technology changes – in addition to reducing costs at large managers and providing additional sources of alpha (through manipulation of more insightful data) they may in the long-term also benefit growth amongst boutique managers, in reducing the costs for newer start-ups with innovative alpha generating (not me-too) processes.

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