Employees in the asset management industry can thank the broad market recovery for saving their compensation from the deepest cuts, but there still will be plenty of paycheck pain.
Year-end incentive pay at traditional asset managers and hedge funds is expected to fall between 10 percent and 15 percent compared to 2019, according to consultant Johnson Associates’ second-quarter analysis,
Private equity staffers will fare better, especially at the large brand-name firms, which benefit from economies of scale. Bonuses for such employees is expected to decline 5 percent to 10 percent relative to last year. But the smaller and mid-sized PE firms will likely make deeper cuts in comp, lopping 15 percent or more from year-end bonuses. While traditional managers have suffered as investors move to lower-fee products like bond funds, hedge funds are still reeling from net outflows on the back of disappointing performance.
The largest private equity funds have enormous amounts of cash to invest, but face portfolio company defaults. Alan Johnson, head of the compensation and consulting firm, said PE outfits benefit from leverage when markets are up. “Now they’re on the other side of leverage and it hurts,” Johnson told Institutional Investor.
“I won’t have a charity benefit for these people. They’re down 10 percent from the top of the mountain,” he pointed out.
In March and April, Johnson Associates had predicted far more dire pay reductions by the end of the year. The recovery in public markets, however, has been far faster and dramatic than most experts forecasted. As a result, assets under management have held steady.
Even so, Johnson said asset managers will likely start laying off staffers later this year and he expects downsizing to continue into 2021.
Some of the layoffs are the result of the success that asset managers have had in being efficient during the pandemic.
“We have been pleasantly surprised at how companies can run efficiently and remotely. But asset managers have found they can operate with fewer people,” said Johnson. “We’re seeing that asset management and the U.S. economy can run a lot more efficiently. Working remotely exposed things like our long commutes. New York City hasn’t changed since the 1950s when it comes to commutes. Now we know we don’t need that. But then it also shows you don’t need as many people as well.”
Johnson expects many of the layoffs to disproportionately affect people of color. That’s because lost jobs will be in areas like operations and technology, many of which are held by Black and Hispanic professionals.