The asset management industry in Scotland – and the rest of the UK, for that matter – is grappling with a problem that cuts to the very heart of its existence. No, it’s not the pressure on fees. Nor is it investors growing love affair with passively-managed funds.
Fund managers are suffering from a dearth of fund managers. If not tackled robustly, the problem may persist for many years to come.
Being a fund manager is viewed as a glamorous and lucrative career – certainly within the context of the financial services industry. Historically, firms have never had a problem attracting the biggest and brightest minds.
But it is not the supply of talented individuals which has caused the current drought. It has been a hiatus in demand following the global financial crisis.
In step with the near collapse of the markets in 2008, most UK asset managers stopped or at least significantly reduced their graduate programmes. Many schemes didn’t return to normal levels until 2012 or later.
These short-term decisions have had a significant long-term impact on the industry, as the career path of a fund manager is a particularly specialist one these days.
Gone are the days when a music or physics graduate would transition seamlessly into the world of money management; and rarer still that a chartered surveyor would step up to manage a UK smaller companies fund.
For the purposes of illustration, we will assume a fund manager’s career now typically follow this trajectory:
The right combination of talent and opportunity could see a graduate become a fund manager in, say, eight or nine years. Or it could take much longer.
Given that graduate intake stalled in 2008 and didn’t resume properly until at least 2012, we are entering a period where the candidate pool for these roles is extremely restricted. It follows the same simple logic of a society that experienced no child birth in 2008. It will have no nine-year olds in 2017.
If we look at the chart below, we can see the potential long-term effects of the decision to cut back on graduate programmes and the reverberations further up the talent pipeline.
There is little point in closing the stable door after the horse has bolted, but it is somewhat ironic that an industry which prides itself on both investing at the bottom and investing over the longer term is now suffering from short-sightedness.
This, of course, is not to underplay the huge commercial pressures which were present during 2008 and beyond.
But unless the global financial crisis was viewed as the end of capitalism, it has been a self-defeating move to cut off so definitively the flow of future talent. This is especially true if we consider the relatively modest costs that graduate programmes incur.
If we experience similarly serious market dislocations in the future, we would all hope the lessons of the past will have been learned.
But we cannot turn back the clock. So what can be done now to solve this problem?
One solution for any employer suffering from a talent gap is, of course, to go out to the market in search of suitable candidates. This would be a normal response.
To be successful in this approach, you may need to look beyond UK shores. You would also do well to partner with a recruiter experienced in attracting international candidates to the Scottish market.
And you would do well to appreciate the challenges of recruiting internationally and how best to manage these.
One person’s problem is another person’s opportunity. An option you may have is to accelerate the development of talent individuals that already exist within the organisation, whether it’s a junior analyst moving to senior analyst, or a portfolio manager being promoted to a named fund manager.
There may be potential in considering high calibre individuals from other departments within your business. Applicants from areas such as finance, risk, compliance, audit and corporate governance could be suitable.
A demonstrable enthusiasm for and a commitment to investment analysis/portfolio management would have to be a prerequisite.
Many of those outlined within ‘Promoting would-be fund managers early’, including:
In the absence of suitable internal or external candidates, the only immediate option you may have is to retain on a longer-term basis your experienced fund managers. Traditionally many fund managers, when in their 50s and having made their money, choose to step away from the pressures of managing money on a day-to-day basis.
A more balanced and progressive solution is possible. Combining the best parts of 3 and 5 (and even 4), it would involve a multi-year handover process, where the underexperienced investment analyst or portfolio manager works alongside the experienced fund manager.
It would be highly structured, with a clear timeframe of when the junior partner would take full and sole responsibility and when the senior fund manager would step down.
With this problem set to persist over several years, it is unlikely that only one of the solutions outlined above will be enough.
Successful asset managers will be the ones that embrace multiple strategies and approaches. We do not need to preach to fund managers about the benefits of diversification.
Such an approach will ensure you have the very best talent, safeguard your business against future talent shortages and ensure you gain and maintain an advantage over your competitors.