As leaner times sweep through the asset management industry, everything from travel expenses and catering services to payroll (read: bonuses) is on the chopping block.
Lower investment returns and assets under management have depressed revenue, leading some managers to impose across-the-board cost cuts, according to managers, consultants and recruiters.
While money management divisions of investment banks squeezed by the global credit meltdown already have reduced staff along with administration and other non-payroll expenses, some independent asset managers are now beginning to follow suit.
Recently, Ariel Investments LLC laid off 18 employees — about 20% of its staff — in a belt-tightening measure amid "a brutal
bear market," said Mellody L. Hobson, president of the Chicago-based value equity firm, which had $8.9 billion under management as of June 30. The layoffs mostly were among support staff, but included two members of its research team — Mischone Donelson and Robert Goldsborough.
Elsewhere, Aberdeen Asset Management PLC, which had $214.5 billion in assets under management as of the end of June, is "encouraging people to use video conferencing or call conferencing" to cut travel costs, according to Andrew Laing, deputy chief executive.
COST SAVINGS STRATEGY
On July 18, Aberdeen officials said the firm — which is based in Aberdeen, Scotland and has 24 offices globally — would generate $144 million in annual cost savings. The news sent its shares up 17.1% to 142.25 pence ($2.84) on the day.
At
UBS Global Asset Management of Zurich, Switzerland, business-class travel has been limited to trips within Europe longer than three hours or trips to the United States of more than five hours, spokesman Richard Morton said. Prior to the changes in the travel policy, implemented around the end of last year, there were no restrictions on business-class travel.
"Of course, there are exceptions," Mr. Morton said. "For example, if you're with clients, it's a slightly different situation: You're not expected to sit in economy while the client is sitting in first class."
Even catering services have been severely reduced, often down to the basics of coffee and tea.
"It's a touch inevitable," Mr. Laing said. "I think at some point or other, the vast majority of the fund management industry will have to confront the same sort of issues we're facing."
Indeed, money managers are feeling the pinch as the credit crunch continues to bite, global economies weaken and financial markets take a hit, making returns harder to come by.
Andrew Formica, head of equities and managing director of listed assets at Henderson Global Investors Ltd. of London, said that the credit crisis "is likely to have a lengthy impact" on asset managers globally, forcing them to look at fresh ways to manage costs. Henderson had $104.7 billion in assets under management at the end of June.
Henderson officials said in February that they had implemented $39.8 million in cost savings for 2008 by reducing head count and trimming other expenses. Officials also identified an additional $19.8 million in further non-payroll cuts to be implemented if "markets stay subdued," according to Mr. Formica.
In addition, some strategies the firm had planned to launch this year are being put on hold.
"The implication is that the credit crisis has invaded every part of the market," Mr. Formica said.
Several managers reported a decrease in revenue in the first half of 2008, compared with the first six months of 2007, according to data from investment bank Jefferies Putnam Lovell, a division of Jefferies & Co. Inc. Both firms are based in New York.
The affected companies include
AllianceBernstein Holding LP of New York; Franklin Resources Inc. of San Mateo, Calif.;
Invesco Ltd. of Atlanta and Baltimore-based Legg Mason Inc. In the United Kingdom, London-based managers including F&C Asset Management PLC; RAB Capital PLC; and Schroders PLC, the parent company of Schroder Investment Management, all reported lower revenue in the first half, compared with a year earlier.
Amid this revenue squeeze, managers linked to investment banks — such as
UBS — have been particularly hard hit by cost-cutting measures as their parent companies attempt to show a high level of cost-consciousness, according to consultants to asset managers.
And while massive layoffs are still rare in the asset management industry, headhunters report that bonuses and other incentives have softened.
Rather than outright job cuts, firms instead are simply not replacing key departing personnel, headhunters said.
At Aberdeen, plans are to reduce staff by about 250 people from about 2,000 globally. The staff reduction would be made partly through consolidating recent acquisitions and streamlining other parts of the business, Mr. Laing said.
BONUSES HIT
Bonuses are likely to be where managers really feel the bite.
"Unlike the investment banking world, the asset management industry tends to be much clearer and generally more formulaic in terms of how people get paid," said Gary Goldstein, chairman of the New York-based financial recruitment firm Whitney Group. He was referring to the practice of linking compensation to assets under management and performance.
Thao Hua is a reporter for sister publication Pensions & Investments.
