Recruiting experts are predicting a relatively flat job market for the fund industry in 2005, although the trading scandal continues to reshape the boardrooms and executive suites of fund management firms, big and small.
In its annual investment management recruiting report released last month, New York executive placement firm Russell Reynolds Associates indicated that overall hiring slowed in 2004. While 2005 should provide greater opportunities for top-line managers in some investment areas, the industry is still far from its heyday of the late 1990s.
"Compared to 2003, [2004] hiring wasn't off drastically, but our recruiting work, as a whole, was probably half the rate of 1999," said George Wilbanks, managing director of the investment management practice at Russell Reynolds.
Wilbanks blames the sluggish job market of 2004 on the 2003 budget process, which was conducted during a depressed market. As a result, fund companies decided to keep hiring in check. The ensuing scandal tightened those reins even further.
"It's still a pretty bleak environment. If you change the regulatory framework of a heavily regulated industry, everyone waits for someone else to make the first move. It makes people hesitant," Wilbanks said.
Of the hiring that will occur in 2005, Wilbanks expects it will be at growing firms, or international groups, such as TCW, that are hoping to return to the U.S. market. Fund companies seeking to fill voids in their product portfolios with such products as hedge funds and separately managed accounts, will also be hiring. Overall, mutual fund hiring could witness an uptick of 10% to 20%, Wilbanks said.
In 2004, according to Russell Reynolds research, recruitment activity within the executive suites of many asset managers was up between 12% and 15% versus 2003. Half of the appointments at the CEO or president levels were filled via internal promotions, while 85% of chief investment officer appointments were external hires.
But arguably the hottest seat of 2004 was that of the newly mandated chief compliance officer. That should continue, predicts recruiter Charlie O'Neill at Boston-based Diversified Management Resources, as fund groups seek to remove the "interim" title from their internal appointees.
"As far as the job of the CCO goes, that was the prominent position in 2004, and it will be again in 2005, largely because most of those appointments were interim," said O'Neill, whose firm examined the post through an industry survey prior to the Oct. 5 appointment deadline. "It may be one of these roles that's easier to perform coming from the outside. You won't have all of the corporate allegiances."
It's too early to accurately determine the day-to-day duties of the typical CCO. In fact, one industry insider called the post a "misguided" effort to restore consumer confidence in the industry after 16 months of intense media scrutiny. Nonetheless, experts agree that a regulatory chief at an average fund company could command a salary upwards of $250,000 annually. A firm with a checkered past might pay even more, while a 25-year industry veteran could readily win $500,000 annually from a leading investment firm. Smaller fund companies, experts agree, will be the most challenged in filling the position.
"They simply don't have the resources," O'Neill remarked.
Compliance officer backgrounds will also vary tremendously; some are lawyers with regulatory experience, others are operational veterans from the controller's office, and a handful could even be from the sell-side of the industry.
As far as an independent board chairman, fund companies must have one in place by the first quarter of 2006. The percentage of independent board members must also be increased to 75% to satisfy new federal regulations. Funds currently are required to have 40% of their board members be independent of the investment advisor, and, if the fund charges a 12b-1 fee, 50% be independent.
Russell Reynolds officials said that among the board appointments in 2004, most were executives with close ties to sitting CEOs, but that trend is quickly moving toward true process-driven searches.
O'Neill pointed out that many investment firms are meeting their independent percentages through addition by subtraction. In other words, board members with company ties are stepping down and those seats are going unfilled.
Alternative investments, according to Russell Reynolds findings, continue to hold appeal with professionals who have felt the weight of increased oversight and regulation and who are drawn by the expectation of a much greater financial upside. Recruitment activity, Russell Reynolds said, has been focused on general management operations and compliance, as hedge funds, in particular, begin to understand that the entrepreneurial spirit must be tempered by the need to have sound systems in order to attract institutional assets.
A handful of hedge fund executives, however, are quietly returning to traditional mutual funds under the pressure of unrealistic expectations from investors and themselves. "Many executives overestimated the market and are finding that their income is not what they imagined," said Debra Brown, managing director of the investment management practice at Russell Reynolds. "Other factors include cultural issues and the length of the investment time horizon. Frequently, investors are seeking a return to the safety and security of a more traditional investment firm."
But as more traditional mutual fund firms diversify their portfolios with alternative options, O'Neill expects that back-and-forth movement to continue.
"It's more of a talent shift than new hires," O'Neill added. "Money management firms are nothing, if not innovative, even the traditional mutual funds. The best talent gravitates to that."
O'Neill also thinks that demand for highly skilled marketing professionals will continue in 2005. Astute strategists will be particularly popular. "We're working in an industry where you cannot see, grasp or taste the product," he said. "Who makes it real? The marketing people."
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