As asset managers position themselves for 2009, the steady stream of pink slips that started to flow last month is expected to continue.
As asset managers position themselves for 2009, the steady stream of pink slips that started to flow last month is expected to continue.
"I would say most firms are at the beginning of that process," said Robert Lee, an analyst with New York-based investment bank Keefe Bruyette & Woods Inc.
Although markets were soft for months, it wasn't until last month that they really took a nose dive, and asset managers are still trying to determine the implications, said Alan Rambaldini, an analyst with Morningstar Inc. of Chicago.
"Go back to 2000 and the tech bubble; that was kind of just that one market that got out of hand," he said. "Now it seems like all asset classes have been hit."
As a result, many managers have seen their assets under management drop dramatically, Mr. Rambaldini said.
One way to combat the corrosive effect of such a drop on a firm's bottom line is layoffs, he said.
Firms that announced layoffs last month include AllianceBernstein LP of New York; Janus Capital Group Inc. of Denver, which expects to cut 9% of its work force; and Legg Mason Inc. of Baltimore, which expects to cut 50 of 147 employees from Bill Miller's Legg Mason Capital Management unit.
AllianceBernstein didn't quantify the number of employees it intends to lay off, but the firm is planning staff cuts that will be "unprecedented in the firm's history," Gerald Lieberman, president and chief operating officer of Alliance-Bernstein, said during an Oct. 22 earnings conference call.
Mutual fund giant Fidelity Investments of Boston is also reportedly considering cutting 9% of its work force.
For the most part, investors need not worry about such layoffs, Mr. Rambaldini said. It is unlikely that managers will cut portfolio managers or analysts, he said.
Cuts will be made to "back-office" staff and, to a lesser extent, salespeople, Mr. Rambaldini said.
Just because assets are down "doesn't mean you have less of [a] need for analysts," Mr. Lee said.
Asset managers understand that, he said.
AVOIDING THE TSUNAMI
Other job categories that may sidestep the raft of layoffs in the wings are internal wholesalers, who can field phone calls from financial advisers, and hybrid wholesalers, who can make in-person calls to advisers and are expected to spend some time tied to a desk, said Mike McLaughlin, a senior managing consultant with kasina LLC, an industry consultant in New York.
The asset management industry had already warmed to hiring those two types, versus external wholesalers, who are more expensive, he said. As asset managers experience outflows, that trend is likely to accelerate, Mr. McLaughlin said.
"It's cheaper, but it's controversial as to whether it works," according to Mark Elzweig, president of an eponymous recruiting firm in New York.
Internal and hybrid wholesalers tend to be younger than external wholesalers, he said.
Advisers are typically in their 40s and 50s, Mr. Elzweig said.
"They don't want to talk to a 26-year-old that hasn't been through a few market cycles," he said.
That may be true, but internal, hybrid and national account managers — those that manage sales relationships — are among the few people that some asset managers are actually hiring, according to kasina's research.
More than 30% of the firms it surveyed last month were looking to expand sales and national accounts teams largely by adding such people.
And in a survey taken last month, Cerulli Associates Inc. of Boston uncovered a similar trend, in which 22% of the asset managers it surveyed were looking at adding salespeople.
"It is a silver lining," said Benjamin Poor, a director with Cerulli. "It shows there is some foresight and good business sense on the part of asset managers and distributors."
In addition, there are select circumstances where a handful of firms are looking to make a small number of hires.
T. Rowe Price Group Inc. of Baltimore, for example, has indicated that it is on the lookout for new talent, Mr. Lee said. And it isn't out of the question that other firms such as Eaton Vance Corp. of Boston and Federated Investors Inc. of Pittsburgh might also look to acquire new talent, he said.
All have fared relatively well during the market swoon, particularly Federated, which has a strong money market fund presence, Mr. Lee said.
But even asset managers that have the ability to hire new people will be hard-pressed to do so in this market, said Howard Schneider, president of Practical Perspectives, an industry consulting firm in Boxford, Mass.
"I think until there is much greater clarity on the direction of the market, firms are going to be very cautious," he said.
E-mail David Hoffman at dhoffman@investmentnews.com.
