The Asset Management Industry Is Still ‘Very Healthy’ — For Now
If tough economic conditions persist or worsen, asset managers could be forced to contemplate headcount and compensation cuts.
On Friday, Lazard became the latest Wall Street firm to cut jobs, laying off 10 percent of staff due to fewer mergers and acquisitions and significantly lower revenue. But most of the employees impacted by the layoffs work for the investment banking division. Lazard’s asset management business — which accounted for roughly half of the firm’s $527 million in revenue in the first quarter — had “strong momentum,” CEO Kenneth Jacobs said.
It’s another example of the asset management industry’s relative dependability, even in tough economic conditions.
“It’s still a very healthy industry,” said Amanda Walters, a principal at Deloitte’s Casey Quirk, a consultancy for asset management firms. (Alternative investment managers are doing especially well.)
There’s much to like about asset management. Within banks and insurance companies, asset management divisions — which also tend to include wealth management businesses (in March, Lazard acquired Truvvo Partners to create Lazard Family Office Partners) — can be big growth drivers, according to Walters.
Asset managers are human-capital businesses and nicely profitable, too. According to Walters, employee compensation and other personnel-related expenses account for as much as 75 percent of expenses, and profit margins are roughly 35 percent. “[Asset management is] probably not going to be the area where there’s significant cuts,” she said.
To be sure, falling markets and net outflows have also been a drag on asset management revenue. Between the fourth quarter of 2021 and the third quarter of 2022, the aggregate of the world’s 40 largest firms experienced a 14.9 percent decrease in assets under management and a 22.9 percent decline in revenue, according to an EY report.
If that financial pressure persists or worsens, more asset managers might find themselves making job cuts, because reducing headcount and compensation are two of the most meaningful levers they have left to pull.
According to Walters, a lot of asset managers put a variety of tactical cost-cutting measures in place during the worst of the Covid-19 pandemic, such as reducing expenses for travel and entertainment, marketing, and some professional services. But going forward, asset managers may be forced to look for other places to trim expenses.
“[That could be] headcount or compensation, or a little bit of both. I think you’re seeing firms now turning an eye toward role duplication, maybe looking for voluntary separations, and then, in some cases, layoffs,” she said.