South African asset managers are struggling to hold onto young professionals who are quick to jump at the next opportunity to advance their careers.
There is a lower retention rate of staff at the analyst level of fund-manager houses compared with senior positions, according to a survey by INN8 Invest, one of the country’s largest discretionary fund managers. Most asset-management firms prefer to groom analysts, many of whom come straight out of university, into portfolio managers.
The companies typically have more analysts than portfolio managers. Analysts tend to leave if it will help them advance to the next level, which goes to show why about 35% were likely to have left for better growth opportunities, according to INN8 Invest’s research.
INN8 Invest, which oversees R35 billion in assets, surveyed 34 asset-management firms, most of which had been in business for more than a decade. The survey covered the five years through 2021.
Some smaller, independently operated firms known as boutique managers attribute part of the churn in their investment teams to poaching by larger asset managers. Boutiques feel they can’t compete on pay and that many junior professionals want to be associated with established brands. This could, however, be a perception since boutique managers can provide staff with good opportunities to improve their skills and gain a wealth of experience.
Besides, 63% of the asset-management firms surveyed said that their compensation structures are not responsible for exits. Interestingly, however, 9% noted that remuneration including share ownership was possibly the reason for staff quitting, highlighting that shorter-term incentives – such as a market-related salary – are more important for younger investment professionals, while the longer-term ownership-related matters impede stability at the senior level.
Most of the reasons cited by the firms for people leaving were emigrations, moved towns, joined academia, further pursued their studies, started their own businesses, or left for health reasons. These together accounted for 69% of departures.
INN8 Invest acts like a multi-manager: It analyses money managers and their performance, and then allocates funds collected by independent financial advisers from retail investors into strategies that suit the client’s needs and risk appetite.
If money managers are unstable, with teams constantly changing, this could hurt returns.
Companies haven’t sat back. To improve retention, asset managers have put clear developmental paths in place at the start of an individual’s career and have analysts manage paper portfolios to enable the build-up of abilities and skills transfer within the industry.
They have also taken other measures, including:
Most managers have evolved from having one decision-maker on a fund to at least two, improving succession planning, business continuity and reducing one-person risks. Of the asset-management firms surveyed, 78% follow a joint decision-making process.
- Asset-management firms are trying to build cohesive teams through various culture-intervention strategies, team workshops, re-emphasising their shared values and striving to create environments where ideas can flourish and be challenged.
- Long- and short-term incentives are being put in place, employees have been given meaningful responsibilities, companies are paying for training, studies, and ensuring mentorship and development, while encouraging entrepreneurial flair.
Appointments in the past five years in the industry have targeted previously disadvantaged individuals, the survey found. The challenge for some managers, however, has been finding diverse individuals. Some asset managers in the early phase of their business may not have formalised plans to address diversity and inclusion, while the issue gains much higher significance to managers with a long track record and are more established.
Worryingly though, the survey shows that the industry has experienced notable people changes over the past five years, with 59% of the managers undergoing some form of restructuring, resulting in changes to investment teams, and causing some instability.
INN8 Invest’s survey also found senior departures have been substituted by junior appointments, in which, for instance, a portfolio manager is replaced by two analysts. This means that while investment teams have become 68% larger over the past five years, collective investment experience between teams has reduced.
While a structured and institutionalised investment process can survive people, the survey concludes that investment outcomes are put at a risk when teams are less stable. It is vital that managers continue to identify, anticipate, and explore as many options as possible to reduce employee turnover.