The 15th September fell on a Sunday again this year, exactly 5 years after the now infamous Sunday in 2008.
Normally Sunday is a day that not much happens in the news. That day and almost every day thereafter for weeks was atypical, this was the unravelling of the financial system. Shock took over as those images of Lehman’s employees carrying boxes of possessions were broadcast around the world.
Over the last 5 years companies large and small have had to align, and re-align themselves to new markets. First, we had the immediate effect that the phones just stopped ringing. I remember that at Funds Partnership our job board went down from over 130 open permanent vacancies to 25 within 2 months. Then it got harder, and took much longer to start placing candidates, at the last minute roles were being pulled right before they were signed, and that was how it started.
Within our Asset Management clients the first thing to go were the sales roles, the front office positions that you don’t really need when everyone has stopped buying. These positions are still one of the clearest indicators of the health of the sector. Transfer Agency departments were heavily impacted with most working impossible hours for a number of months, due to vast redemptions and many funds were closed. Most companies tried to get by with their current staff numbers without hiring and this put considerable pressure on Transfer Agency teams.
Lawyers were in high demand as companies were seeking increasingly complicated advice, whether to wind funds down, or simply to go into administration. All non-essential hiring just stopped, unless there was a company-wide strategy behind it. One of the few areas which still did reasonably well at that time was in Luxembourg, courtesy of the introduction of the SIF just a year or two earlier. This was still attracting business to the domicile, mainly Private Equity and Real Estate related although the fund sizes were much smaller. These assets were illiquid, so firms had to invest in their treasury function to cope with the liquidity complications.
I haven’t mentioned Risk yet…
That’s because apart from a few firms directly impacted, Risk departments did not immediately hire staff. In fact it wasn’t until as long as 2 years after the crisis took hold that companies started to hire in the area, and only in response to regulation. Initially they hired compliance staff, and as requirements grew, and regulation became more complicated, Risk management oversight became the name of the game.
Trends in 2013
Since the start of 2013 we have seen a steady increase in hiring across the board. Most companies have now been through the cycle of letting go of staff, re-thinking processes, and employing in specific areas again, albeit slow. The best news is that there has been a steady increase in sales roles throughout the asset management and asset servicing sector, suggesting there is business out there. However the largest and most clear trend remains the ongoing search in Compliance, Risk and Legal. There is now so much more additional work that Managers have to do when conducting an asset management business, other than the asset management itself, that they must invest considerably in hiring staff to cover all these additional areas, and management fees have increased.
What this means for the industry
Perhaps the most worrying impact is being felt with the small to medium-sized managers. All this additional regulation is just about manageable for the bigger firms but it is the smaller firms who have to take on the new responsibilities of additional staff and processes where these costs are harder to incur. The concern is that the smaller, more creative asset management boutiques will slowly be cornered out of the market, leaving only the bigger players. This is not good for the industry. If asset managers are held back by regulation, it will only take the industry longer to recover, and ultimately investors will pay the price for the higher regulation that was intended to protect them.
There were many lessons that we learned from the crisis. Not a lot has really changed however, when you consider that investors currently trend towards bond funds that are massively inflated, creating a similar bubble to that which existed pre-crisis. While much talk is being made of Risk, Legal and Compliance among regulators and governments, as this example shows, it is fairly ineffective when you consider it will not stop investors from going in the direction that they wish, especially if they don’t see the returns they are looking for.
Posted by Rana Hein-Hartmann