One of the most lucrative industries has a retention problem.
Although financial services overall has always been an attractive sector for young people looking for stability and high compensation, the firms that invest trillions for pensions, endowments, and individuals — asset management firms — have trouble keeping that talent. Executives at some of the most prominent managers, including Goldman Sachs Asset Management and Blackstone, said that while they don’t have too much trouble recruiting for roles, retention is often a challenge. Asset managers’ retention problems have also increased as a result of the pandemic.
Julian Salisbury, global-co-head at GSAM, said that while the firm has no issue recruiting junior talent, particularly at the graduate level, to its entry-level roles, the greatest challenge is its ability keep them and provide them with opportunities to grow.
“Getting them isn’t the problem,” Salisbury said, speaking on a panel titled “Mega-trends in asset management” at the 2022 Milken Institute Global Conference.
Instead, Salisbury said it’s hard to convince these newer hires that they have upward mobility at the firm. This issue isn’t isolated to GSAM.
“Our talent problem is retention, not attracting talent,” said Kamal Bhatia, the chief operating officer at Principal Global Investors.
In 2021, the financial industry experienced an annual total separations rate — or turnover rate — of 28.5 percent, according to the U.S. Bureau of Labor Statistics.
Bhatia said that the majority of people he has worked with have expressed an interest in working on problems they personally care about, a mission Bhatia believes they can accomplish at an asset manager.
Kim Lew, president and CEO of Columbia Investment Management Company, said people early in their careers are increasingly attracted to allocators.
Lew said in the past, managers at the investment offices of endowments and foundations were often seen as the “nerd community.” In recent years, Lew said this has shifted.
“We are the cool club now,” Lew said.
Lew said this is largely because of the realization that the field allows talent to marry their personal values with their commitments to their professional life. With the advent and increasing integration of environmental, social, and corporate governance initiatives and diversity, equity, and inclusion efforts, this mission-focused fervor has only grown. However, Salisbury noted that industry is still in the very early stages of implementing ESG and sustainability initiatives into client portfolios. The trickle-down effect to talent may not happen quickly enough to make them stay.
Asset managers may also face new challenges in retaining talent as they navigate the changing macroeconomic environment and its effect on their portfolio construction. With new headwinds like inflation, rising interest rates, decarbonization pressures, a potential recession on the horizon, and geopolitical tensions, the asset management industry may need to revamp their approaches to portfolio allocation. The impact on talent is unforeseeable.
“I think the next decade is going to require a much different portfolio,” said Joe Dowling, global head of Blackstone Alternative Asset Management. “I think investors are going to have to have a different playbook.”
Lew echoed this sentiment: She said the headwinds, and the investing world in general, look much different than the pressures of the past two decades. She added this is another important reason for investment teams to be diverse. While a homogenous group of experienced managers may be able to back their books with impressive track records, a diverse team will bring diversity of thought and investment experience to the table — an advantage when firms are tasked with navigating an environment in flux.
For Lew, this approach extends into manager selection: “Going forward, I’m looking for managers that have been very thoughtful about [having] a team that have some experience and knowledge about….what’s to come, not what has been happening in the past,” she said.