Credit Crunch Hitting Fund Staffing Levels
December 3, 2007
Shakeouts at State Street Global Advisors and Bank of America's Columbia Management unit may be just the tip of the iceberg, as repercussions from the credit crunch hit mutual fund staffing levels.
"We've seen people pushed out the door, and we expect to see a lot more," said Amy de Rehm, North American sector leader in the asset management practice at headhunter Korn/Ferry International.
Chief investment officers and other investment decision-makers will be the first to be fired, she said, but there will be additional team members following them out the door.
The subprime crisis has led funds into an overall reassessment of their organizations' management strategies. As they look at how they can improve risk analysis and management, it is likely staff reassignments and job cuts will be part of the process.
"We expect to see a trickle-down effect that will reach mid-management," de Rehm said.
According to a recent report, 130,000 people already have lost their jobs on Wall Street, and there's still one month to go. That's well ahead of the record 116,000 who got the pink slip in 2001. By comparison, only 50,000 lost their jobs last year.
The high-profile dismissals at State Street include Sean Flannery, formerly chief investment officer for State Street Global Advisors in North America. In August, as the credit crisis gathered momentum, Flannery said the company's investments in housing-related assets had begun to lose value at a rate that was among the most severe ever experienced by the company.
Also leaving State Street was Paul Greff, head of the fixed-income team, and Michael O'Hara, who ran the firm's active fixed-income division.
State Street has now reorganized into a structure that relies on four chief investment officers, each responsible for a specific asset class.
Columbia Management also underwent executive suite reassignments last month. As part of that process, the company created a Fixed Income Investments and Liquidity Strategies that will be run by Stephen Peacher, who had run the company's bond investment operations. The company also created a new position, head of product management. The firm's chief investment officer, Colin Moore, has also taken on new responsibilities.
Peacher's new job comes on the heels of the appointment of President Michael Jones to run Columbia, along with other changes at parent Bank of America.
One example of the pressures faced by funds whose investments include subprime-affected areas, is a statement by Bank of America that it will provide as much as $600 million in back-stop financing to support some Columbia funds due to recent problems growing out of their investments in special investment vehicle holdings (SIVs). SIVs are off-balance sheet entities, which have seen a drying-up in demand for debt they issue.
Another area of vulnerability for the funds is exposure to mortgage-related debt. In recent months, these assets have plummeted in value, as markets for these securities have all but vanished.
More Blood in the Water
Korn/Ferry's de Rehm said job cuts may well extend beyond investment personnel, who are the most prominent of the targets for belt-tightening moves. "It will be based on how margins fare. If you take an already competitive business and add margin pressure, there will be more cuts," she said. Job losses could well spread to distribution personnel and sales staff, she said, as funds struggle to cut costs in the face of declining returns.
Barry Eman, a recruiting executive at headhunter MJE, said that demand has been brisk among his clients for operations staffers. In fact, he said there were two countervailing trends at mutual fund companies he works with.
On the one hand, clients are looking for fund administrators, fund operations personnel and other staffers. On the other hand, many mid-size and small funds are outsourcing their back-office operations.
But as far as job losses and reassignments as a result of the subprime crisis, Eman expects to see more movement in this direction as the credit crunch continues.
So far, the job cuts he has heard about have taken place in the larger firms. But he said he expected that the subprime crisis could affect fund groups in the long term, regardless of their size.
Another endangered sub-set of mutual fund professionals, according to Eman, is quantitative analysts, whose strategies tanked during this first outbreak of the subprime crisis in August.
Investment sectors in which the job losses and reassignments are likely are those that are sensitive to banking and financial stocks. He ticked off funds that have exposure to REITs, other types of real estate assets and mortgage brokers as places likely to cut headcount.
"Where you see funds going downhill, there are likely to be cuts," he said.
An adjacent sector that may also suffer staff reductions is mutual funds that focus on insurance investments, Eman said.
Next year may well be a slower year for managed fund industry employment levels, he said. A combination of the likelihood of many layoffs and a less expansive hiring profile could be in the offing.
Along with a cut in personnel levels, de Rehm expects to see longer product development cycles, which will affect how companies deploy teams. This trend could lead to a further reshuffling of personnel, as funds try to squeeze more performance out of smaller numbers.
The depth of the economic trough created by the subprime crisis is impossible to predict, but recent moves by large firms like State Street and Columbia could be leading indicators that fund professionals should keep their resumes up-to-date.
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