The Robots Are Already Stealing Some of Your Bonus: Mark Gilbert
(Bloomberg Opinion) — The good news for asset managers is that they will get an average pay increase this year of 5 percent. The bad news is that increased spending on technology is reducing the amount of money available to their compensation pools.
That’s the conclusion of the annual Asset Management Compensation study jointly published by financial services research firm Greenwich Associates and pay consultants Johnson Associates. The study shows income growth for workers in the industry will slow from 2017, with volatile markets in the third-quarter eroding their likely payouts for the year.
The firms surveyed more than 1,000 U.S. investment management professionals, combining those results with proprietary data on industry pay trends. Not surprisingly, compensation levels for hedge fund managers are predicted to outpace the rest of the industry – but the average increase for them will be just 3 percent this year, the study suggests.
Salary increases at hedge funds will be limited by the increased volatility in performance fees and the general trend for the funds to charge less for their services. And there’s the not insignificant issue that the funds have been unable to deliver on their promise to generate alpha and beat their benchmarks. For those in equities, the compensation gains will be even lower.
There’s an arms race in the fund management industry, and the competition isn’t only about harnessing artificial intelligence, machine learning and big data to improve the likelihood of selecting market-beating investment strategies. Technology is increasingly important in making portfolio construction more efficient, in improving how firms interact with their customers, and in cutting costs in a myriad of back-office functions.
And all that costs money that might otherwise have flowed into an asset managers’ pockets.
Technology isn’t the only pressure on pay, though. The relentless flows into low-cost asset-tracking funds have put the entire asset-management industry under pressure to reduce its fees, a trend that shows no signs of reversing. At the same time, regulatory scrutiny of the industry is increasing, creating additional costs for firms.
Given the performance of their firms’ share prices this year, investment professionals should probably be thankful that they’re getting any uplift in compensation at all.