Demand For Equity Managers Sinks in 2001
January 28, 2002
Portfolio Managers' Stock Falls for First Time in Years, Survey Says
As the market goes, so too does the demand for the people that work in it. In 2001, if you were a value manager, especially in the international, mid- and small-cap sectors, you were a hot commodity. If you were a U.S. equities manager, your stock plummeted, according to a new Russell Reynolds Associates survey that examines recruitment trends.
The survey, 2001 Recruiting Trends In Investment Management, is based on information gathered from more than 200 executive searches conducted by the New York-based executive search firm.
A general decline in U.S. equity markets in 2001 has resulted in reduced asset levels, revenues and profits, putting a squeeze on many managers. Overall demand for equity managers diminished in 2001 for the first time in years and many firms took advantage of the soft market to cut back on "deadwood" and upgrade their talent, the survey said.
Especially toward the end of the year, there was a greater interest "in upgrading business teams, including portfolio managers," said George Wilbanks, managing director of Russell Reynolds.
In 2001, firms began offering early retirement packages and many managers, perhaps sensing that the days of guaranteed double-digit returns were over, decided to throw in the towel, he said.
Reports of managers hitting the bricks, especially those in the tech and aggressive growth sectors, have become increasingly common. In December, Merrill Lynch replaced growth manager Paul Meeks as the manager of its $1.1 billion Global Technology Fund. While it was never revealed whether Meeks left on his own to pursue other interests or whether he was fired, the move followed several earlier manager departures from the firm. Those departures may have stemmed from buy-out offers Merrill was offering as part of a campaign to cut costs.
And Putnam Investments reportedly tried to rein in their growth managers in 2001 by conducting reviews of their stock-picking practices and examining the measures they have in place to monitor their managers. In fact, last week, Putnam fired Steve Kirson, one of three managers on Putnam's OTC Emerging Growth Fund, according to Chicago-based fund tracker Morningstar. The fund's performance sank 46.1% last year.
But whether it was managers voluntarily beating a quick exit for greener pastures or the fund companies handing out pink slips, turnover of equity portfolio managers is definitely on the rise, said Roy Weitz, publisher of FundAlarm.com, a Web site that tracks, among other things, manager changes. "There does seem to be a pick-up in activity and a growing sense that the stakes are higher and the leash is shorter," he said. "Things are a little more tense and manager turnover is one of those manifestations."
Indeed, many portfolio managers were given less flexibility to invest in an "unbridled stock-picking" manner which placed an increased demand on managers who could utilize a quantitative approach to investing and would respect risk management measures, the survey said.
Value Managers' Day In the Sun
While some managers were being shown the door, others were given the red carpet treatment. That was especially true for value managers, according to the survey. Moreover, there is a lack of available talent in that sector, allowing value managers to command top salaries, according to the study.
Other managers that saw their stock rise were international and global equity managers. In fact, compensation for global equity managers grew 49% from 1999 through 2001 and experienced international and global managers are expected to continue earning a premium over their domestic counterpoints, the survey said.
And, not surprisingly, demand for fixed-income managers continued to be strong throughout 2001. Managers and analysts with experience in the high-yield and distressed areas were especially sought out by hedge funds. Overall, fixed-income represented one of the bright spots in recruitment, the survey said.
The drive to attract high-net-worth investors drove "an unprecedented level of interest" in alternative managers, especially hedge fund and funds of funds managers, the survey said. Recruiting by venture capital firms dropped off but was strong for private equity firms.