Experts on employment trends believe the future will bring plenty of career opportunities, but those opportunities may require professionals to consider new options.
• With the investment industry in a state or rapid flux, career prospects are shifting rapidly as well.
• Global megatrends are transforming talent markets for investment professionals.
• Highly skilled and savvy professionals will be able to find opportunities but may have to change their search parameters as hiring trends diverge because of geographic, technological, and business factors.
No matter where your career stands at the moment, you can always count on one thing—the investment industry is constantly changing. Fortunately, an exploration of the big industry trends can provide plenty of clues about how far the industry has come and where it is heading. What career specialties and geographic regions have been hot thus far in 2017, and where do experts expect the hotspots will be at the beginning of 2018?
Worldwide megatrends are converging to transform the prospects for investment professionals. Consolidation among firms is leading to cuts. Fintech is disrupting the industry. The global talent market is evolving in different ways from region to region. As a result, experts on employment trends believe the future will bring plenty of career opportunities, but those opportunities may require professionals to consider new options. In particular, those who hold the CFA designation may find that some trends may give them competitive advantages.
The Big Picture
This year is shaping up to be one of significant changes in investment management. Trends include strategic acquisitions among firms and money moving from active management investment vehicles into lower-cost passive investment, both of which are causing firms to trim costs, cut staff, and refocus resources. Then there is the changing age demographic, which has led companies to consider the influx and preferences of millennials while still catering to baby boomers. Many hedge funds are struggling to produce enticing returns and justify their fees to investors. And a far deeper reliance on technology for better investment management, along with the delivery of financial advice through varying forms of robo-advisers, is becoming a mainstream reality as fintech permanently disrupts the norm.
Efforts made by existing investment management firms to rein in costs, become more efficient, offer more-appealing and lower-cost products that will attract younger investors while continuing to serve older investors, and expand into global markets have had both positive and negative effects.
Consolidation Means Cuts
First, the bad news: The investment industry has been experiencing its fair share of layoffs as firms morph to meet the new realities.
During the latter part of 2016 and through June of this year, multiple company mergers have been announced. According to a report from Casey Quirk by Deloitte, there were 133 mergers and acquisitions (M&A) among asset and wealth management firms in 2016, largely driven by a quest to enhance access to new technologies and processes and, for banks and insurers, to add wealth management skills for existing clients.
Unfortunately, mergers often mean redundancies, with leadership looking to cut headcount to emerge stronger and leaner as a combined organization. One such merger is Standard Life, of Edinburgh, Scotland, with Aberdeen Asset Management, of Aberdeen, Scotland—800 job cuts are expected during the next three years. Another is UK fund manager Henderson Group’s purchase of the US-based Janus Capital Group, which reportedly will put 10% of investment management, research teams, and trading jobs at risk (a quarter of which would be from reducing the combined headcount among investment management and trading personnel) as part of “planned cost synergies.”
Where mergers and acquisitions are occurring, there will be redundancies and shared services as, in some cases, individual companies readily agree to share service platforms. That can shave costs, but it also inevitably means shaving jobs.
And the consolidation trend is likely to continue. According to the Casey Quirk report, “Investment management M&A activity should continue to be brisk in 2017.”
Where Falls the Axe?
Other firms, seeking to trim costs in order to stay competitive, have been wielding the axe as well. For instance, over the past year and a half, at least four large firms based in Boston alone have significantly reduced staff and shaken up executive leadership. Putnam Investments, in November 2016, announced it would cut 8% of its workforce, including investment personnel and its chief investment officer (a 15-year veteran), in a $65 million cost savings initiative. (Putnam promoted three executives to replace the investment chief, each more narrowly focused on equities, fixed income, and global asset allocation.) At the start of 2017, Harvard Management Company, which oversees the world’s largest university endowment, said it would cut 50% of its 230-person staff, including its internally managed hedge funds, by the end of fiscal year 2017. Citing difficulty attracting and retaining top talent, executives decided to outsource some of the firm’s management teams. In June 2016, it was reported that GMO cut 10% of its global workforce, also firing its CEO and several investment executives in its quest to refocus its global equity team from fundamental stock selection to a quantitative investment process. The CEO was replaced by an interim head, who was replaced again in January 2017. And State Street began a multiyear cost-cutting initiative in early 2016 that is expected to slash up to 7,000 workers by 2020.
The layoffs go far beyond Boston. PIMCO of Newport Beach, California, a division of Germany’s Allianz, cut 3% of its global staff in 2016 and replaced its CEO in November. Chicago-based BMO Global Asset Management, the asset management division of Bank of Montreal, laid off a third of its investment management staff in March in acknowledgement of a shift away from active management. And perhaps most jarring was BlackRock’s announcement this past March of its overhaul to its actively managed equities business in favor of greater reliance on computers. About 40 employees, including seven traditional fundamental portfolio managers, were shown the door.
“Since September 2016, the industry has been laying off people for the second year in a row after a peak hiring period in the summer of 2015 and a subsequent 2015 year-end slowdown,” says George Wilbanks, managing partner at executive search and recruitment firm Wilbanks Partners of Stamford, Connecticut. “Bonuses are down, and firms are adopting zero-based budgeting.” Broadly speaking, many of the big firms are trying to flatten out their organization, particularly on the retail distribution side, he adds.
From the way the approximately 2 million jobs within the global investment management industry are shifting, it’s fairly obvious that the industry as a whole is preparing for a different future. A comprehensive report titled Future State of the Investment Profession, released in April 2017 by CFA Institute, cites a survey of 1,145 industry leaders to illustrate several current global shifts. An overwhelming 84% of those surveyed expect continued consolidation within the industry, and 52% expect substantial or moderate contraction of the profit margins of asset management firms.
Winners and Losers
Profit margins among asset management firms, although narrower than they were a decade ago, remain robust relative to those in other industries. Although increased pressure to deliver results is real, active management is very much alive and kicking. However, active managers will need to continually evolve and deliver new products and approaches to relationship management, according to a February 2017 report from Greenwich Associates of Stamford, Connecticut, a global provider of market intelligence and advisory services to the financial services industry.
“Reports of the death of active management are not just premature, they are altogether incorrect,” states the report. “Although investors’ increased appetite for passive investments appears to be secular rather than cyclical, active management will remain a viable and attractive business for the foreseeable future.” In making its case, Greenwich Associates points to such evidence as the importance of complex, opaque, and illiquid markets, none of which lend themselves well to passive investment strategies.
Among active investment managers, however, there will be winners and losers, explains the report. Those firms that stick with traditional, product-centric approaches and highly liquid asset classes or that fail to innovate new products risk getting trampled. Winners will be those active managers “who partner with clients in areas with high levels of complexity” and can provide their “unique insight or the capabilities to exploit information asymmetry.”
The Good News
Despite difficult circumstances in some sectors, there is reason for optimism in other areas. But it’s important to understand how unfolding worldwide megatrends, shifting investment preferences, and the quest for a competitive edge are driving and changing the investment management landscape. Experts say that career opportunities will exist but may be located in new geographic regions and within new niches.
The relentless shift from assets held in active management to passive investments and lower-cost vehicles, such as ETFs, has logically fueled a move for the investment industry “away from core markets and into less efficient asset classes and alternative investments,” says Wilbanks. Distressed debt, risk arbitrage, bankruptcy, and private equity have become appealing asset classes, as have emerging-market debt, emerging market equity, local currency, and small cap concentrated equities with a value tilt. Firms are “moving into more thinly traded securities as a way to achieve alpha,” adds Wilbanks.
The notion that institutional investors are bailing out of hedge funds in droves isn’t the reality, he says, pointing to a recent industry conference on the subject. “They are willing to pay 10%–20% of the alpha generated, but the problem is that there is often no alpha being created.” Consequently, a significant number of hedge fund managers are deploying assets to alternative investments (including private equity) and less efficient markets. Wilbanks says he is searching on behalf of niche managers diving into commodities, energy, and frontier markets, for example.
This shift means that investment professionals should be looking to further develop their skills for less transparent markets, according to Wilbanks.
Global Talent Markets
A variety of talent markets around the world are poised for tremendous growth, and investment professionals there (or those who can relocate there) will find an expanding range of opportunities.
Asian markets are also ripe for investment professionals. Because many Asians have lacked access to professional financial services in the past, the industry’s potential is great. “Growth of the broader Asian investment market has eclipsed the markets of Hong Kong and Japan,” says Wilbanks. However, firms in China, for example, cannot just enter into joint ventures, because these arrangements look like pyramid schemes and regulators are clamping down.
“Those in Asia have reason to be optimistic,” says Rebecca Fender, CFA, head of the future of finance initiative at CFA Institute. “There will be more need for financial analysis skills and more opportunities in Asia.” She notes that this year, for the very first time, there are more Level I candidates enrolled in the CFA Program in China than in the US.
Opportunities for jobs do exist if you know where to look. Vanguard, the mega-index investing pioneer with 16 locations around the world and a collective $4.3 trillion in assets under management, has been on a hiring spree for pure money management investment talent in London, Melbourne, and Hong Kong. “Talent is critical to our future success,” says Tim Buckley, chief investment officer and managing director at Vanguard. Serving non-US clients has become a critical initiative for the company. The European market for Vanguard has been growing very fast, with the fastest growth being in work for financial advisers. “The Vanguard value proposition knows no geographic boundaries,” he adds. “Low cost is the best for investors to maximize returns, and we’d like to bring this to the world.” The firm currently manages $300 million of its $4.3 trillion in non-US markets.
“London is the global financial hub for a diverse pool of talent and for interaction with other firms. It’s a gateway to the world,” Buckley says. That remains true whether or not Brexit becomes a reality. For Vanguard, taking its investment management competencies across the globe was initially built out of the 2008–2009 Global Financial Crisis, but that shift has accelerated during the past four years. Both London and Melbourne have been hiring hotspots for Vanguard. Its Hong Kong office started as more of a business office but has more recently begun moving into investment management.
As of June 2017, Vanguard has added 70 investment positions worldwide, with continued hiring expected in 2018 across the UK, Australia, and the US, Buckley says. The hiring spree has been driven by record cash inflows. Although the emphasis abroad has tended to be on more-experienced hires, the company is now culling talent from universities and adding interns.
What does Vanguard look for in those it seeks to hire? CFA charterholders are very much appreciated for their background and their obvious commitment, according to Buckley. He also says Vanguard asks not only how well an individual manages money but “What is their higher order of thinking?”
“We want great mentors and teachers who are comfortable with technology—those who know how to leverage big datasets and can be a bit of a data scientist.” He adds that “analysts need to be comfortable with asking questions, being curious, which can lead to insights and coming up with hypotheses. We always look for someone with a purpose and who knows why they are doing this.”
Tech: A Double-Edged Sword
Perhaps the trend with the greatest impact has been the huge advances in technology, used both in amassing and sorting datasets and in creating and using algorithms for modeling and selecting investments. Moreover, technology has allowed an increasing number of enterprising wealth-tech firms to replace humans with robo-advisers.
“It’s all about technology,” says Roy Cohen, career counselor and executive coach in New York City. “Technology touches research, strategies, sales trading, and more.” Firms are now looking for “quantamentals,” he adds—those with programming skills in Java and C++ to go along with their investment skills. “Whether in sales or other roles, you need to have technology across the spectrum.”
CFA Institute President and CEO Paul Smith, CFA, in a speech given in May in honor of the 70th anniversary of CFA Institute, acknowledged the emergence and importance of new technologies. “We must adapt to them before they disrupt us. We must complement and harness these new forces, not fight against them,” he said. “We are far better off viewing new technologies as opportunities, forces that can dramatically expand our market opportunities.” He further acknowledged that the technology revolution is inescapable and that tasks we do personally today will be automated tomorrow. “But that does not erase your role as an investment professional,” he points out.
The mainstream use of technology can be unsettling. “I don’t think folks were prepared for technology to change the investment management landscape as quickly as it has,” says Cohen. But the changes haven’t come without advantages. “The first wave of technology is a good thing for analysts who won’t need to do mundane tasks any longer,” suggests Fender, who adds that technology roles are becoming hiring hot spots for the industry. “Our members have a lot of interest in fintech,” she enthuses.
“In the past, [the opacity of] big data and machine learning had been perceived negatively; as black boxes,” says Yin Luo, CFA, vice chairman and managing director at Wolfe Research in New York City. Luo joined the firm in September 2016 after almost seven years at Deutsche Bank to lead coverage of quantitative research, economics, and portfolio strategy. “But the talk of artificial intelligence replacing humans is a very long way off.”
Nonetheless, investment firms of all types are scrambling to embrace many new technologies, either by acquiring firms, building their own capabilities, or even contracting with outside data providers. “Within the last six months, almost every large manager is trying to incorporate big data into their business,” says Luo. They are realizing that if they don’t do this, they will be competitively disadvantaged and could go out of business. So, for the last one to two years, hiring has been brisk.
Incorporating quants into fundamental investment shops is not a new phenomenon. What is new is for firms to assess how technology and quant models can best be leveraged so portfolio managers can better manage money.
Today, however, the technology trends are not primarily about replacing humans with robotic systems but about implementing systems to take advantage of massive amounts of data from many sources. “The right move is about firms managing that data and giving analysts the tools to make better decisions,” Luo says. That means CFA charterholders still have plenty of opportunities, including helping the technical quants to understand finance.