Asset Management

US Investment Managers to Slash Costs, Margins, Bonuses – New Survey

Nick Parmee 23 January 2009

US Investment Managers to Slash Costs, Margins, Bonuses – New Survey

US investment managers are making radical cost cuts — on average 22 per cent — in response to plummeting asset values, according to a new survey by Connecticut consultancy Greenwich Associates' Competitive Challenges - and some of the biggest cuts will come at the executive level.

"Instead of cutting costs in line with revenues to reach 'normal' profitability, most firms are trying to position themselves for a rebound in the markets and cutting less in client-facing and investment areas," said Greenwich Associates consultant Goran Hagegard.

"This effectively means accepting lower margins in the short-term. Firms project operating margins to fall an average of 37 per cent in 2009 from their 2007 levels," he said.

Firms reporting that they are taking active measures to cut costs are targeting an average 22 per cent cost reduction by the end of 2009 compared to their 2008 budgets. Only a few managers are attempting to weather the storm without major expense reductions. Across the industry, asset management firms are looking to reduce 2009 budgets by about 14 per cent from the 2008 forecasted expense level.

Most are targeting non-investment departments. Approximately three-quarters of the firms cutting costs are targeting support services and/or investment operations, and about two-thirds are targeting distribution and client services and/or information technology. More than half the firms say they are targeting executive management, and this expense category could experience some of the deepest cuts," said Greenwich Associates consultant Chris McNickle.   

Key to managers' cost reduction efforts will be an average 29 per cent reduction in bonus expense from 2007 to 2008. In addition, about half the firms surveyed said they are reducing headcount. Firms taking that step have eliminated or are planning to eliminate almost 11 per cent of employees on average.

Greenwich Associates interviewed chief executives, chief operating officers and chief financial officers in December at 47 US asset management firms that invest a total of about $3.2 trillion.

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