InvestmentsApr 4 2016

Costly ‘star managers’ face pay cuts - PwC

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Costly ‘star managers’ face pay cuts - PwC

Big name fund managers could find their ‘star’ quality has less of an impact on their pay packets, according to accountancy firm PricewaterhouseCoopers, as the industry faces increasing scrutiny from regulators and shareholders.

PwC predicts assets under management will surge in the next four years, but in a recent report entitled ‘Rethinking reward as asset management moves centre stage’, it is forecast asset managers’ pay will not increase at the same rate.

The cult of the all important star manager will become diluted, the report published today (4 April), said, as team decisions would become increasingly important.

According to the report, this will be reflected in the way fund managers are compensated.

Tim Wright, partner in PwC’s reward team, said: “In an industry where the most valuable and costly asset is its people, pay structures for asset managers will have to adapt to match the evolution of the industry and increased costs and pressure on fees.

As asset management firms increasingly move to areas traditionally dominated by banks, Mr Wright said this meant the payout fund managers receive will “inevitably” be scrutinised by both regulators and stakeholders.

This is expected to lead to higher standards of transparency and governance, with the pay of individual fund managers aligning more closely with the performance of the team.

According to Mr Wright, attention will turn to team-based incentives which he said should mitigate risks for individual firms when high profile fund managers leave.

PwC also cited a reduction in compensation for asset managers as a percentage of revenues, falling to 35 per cent by 2020 from a high of 45 per cent.

The compensation pool is expected to grow alongside assets under management, but the report reckoned margins will be squeezed, meaning higher revenues will not necessarily translate to higher profits.”

Ben Yearsley, investment director at the Wealth Club, agreed there is more pressure on fees within the asset management industry, but said he does not see why that should lead to more of a team-based approach.

“There has always been room for both a team approach and a star manager approach and I don’t see it as salary related which gains precedence at any one time.

“You could argue that if fund manager pay is falling across the board then that will make younger people less inclined to choose asset management as a career path.

Mr Yearsley said what is more pertinent is whether fund managers - either stars or teams - should be well rewarded for average or below par performance.

“There are still too many mediocre funds probably with over paid managers or teams in charge.”

katherine.denham@ft.com