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Categorized | Financial

UK investment staff increases by a fifth

Posted on October 2, 2016

A trader speaks on a telephone at the BFAM Partners Ltd. office in Hong Kong, China, on Monday, May 9, 2016. Benjamin Fuchs, founder of BFAM Partners, has steered his $1.8 billion Asia fund to nine straight months of positive returns and boosted assets under management by $650 million since July 1. Photographer: Justin Chin/Bloomberg©Bloomberg

The number of investment staff at UK asset management companies has increased by a fifth over the past five years, despite growing pressure on fund houses to cut costs and reduce the number of funds they run.

Overall headcount for the asset management industry has risen by a third since the start of 2011, to 37,000, according to figures released last week by the Investment Association, the UK trade body for fund managers.

    Investment staff account for a quarter of the total, with sales, marketing, compliance and legal making up the remainder of the roles.

    The increase in headcount reflects growth in assets under management in the UK. Domestic fund managers collectively run £5.7tn of assets, up from £4tn at the start of 2011.

    Tim Wright, partner at PwC, the consultancy, said: “Despite pressure on costs building over the past few years, the industry has experienced significant growth in the levels of assets managed, and the population of investment professionals has grown commensurately to support this.

    “On the whole, shareholder returns for owners of asset management businesses have been maintained over this period, suggesting that the investment in people has been broadly justified.”

    However, Mr Wright added that the rising popularity of cheap passive funds could put pressure on asset management companies to reduce the size of their investment teams. The IA research showed passive funds have increased their market share in the UK to account for 23 per cent of total assets — up from a fifth at the end of 2010.

    He said: “In theory, passive funds require fewer resources to manage than active funds, given the lower research burden. This is also reflected in lower fee rates.

    “As passive funds play a bigger role across the industry, [companies] should be able to manage the same level of assets at a lower cost and with fewer people.”

    A number of international fund companies, including BlackRock, Aberdeen and GAM, have already announced job cuts over the past 12 months, although investment staff have largely been spared.

    Christian Edelmann, partner in the asset management practice at Oliver Wyman, the consultancy, said further reductions in headcount are inevitable due to cost pressures on the industry, particularly in the context of the growth of the passive market.

    He said: “The industry struggles to reduce costs. That is the big challenge. I have not seen the trigger point [that will cause a widespread reduction in headcount, but] undoubtedly the cuts will come.

    “Large asset managers such as BlackRock, Vanguard and State Street are competing heavily on price. Others are struggling, unless they have a massive captive distribution network. The standalone active fund companies are under massive pressure.”

    He added that assets across the industry have increased 80-90 per cent over the past decade, but cost-income ratios have only fallen 3 basis points. This is because asset managers have not trimmed the size of their workforce, which typically accounts for 40 per cent of their cost base, unlike the big global banks.

    Mr Edelmann added, however, that fund companies are looking to hire data scientists in their portfolio management teams to help them assess vast streams of information on the internet.

    “In the old days, fund managers read analyst reports and met the management of companies. Now they are hoping to get an edge,” he said.