March and April mean bonus season for the investment industry. For those selecting funds, this aspect of the annual asset management cycle is usually only relevant because of the coterie of managers who tend to up and leave shortly afterwards.
But recent developments suggest the Investment Association was right to warn last year that asset manager pay is becoming an increasing source of reputational risk for the whole sector.
Because while last week did bring a reprieve for the industry in the form of the Bank of England fighting back against European proposals to cap bonuses, it also saw two high-profile figures put under the spotlight.
One of these resides in senior management, a group who are already very familiar with such scrutiny: Michael Dobson’s move from chief executive to chairman at Schroders was accompanied, in amongst it all, by a near-doubling in the latter position’s salary. It’s the fund managers themselves who could face closer examination in future, however.
Look at the dispute between Richard Pease and former employer Henderson for a clue as to how this may develop: court filings reportedly claim Mr Pease was entitled to 50 per cent of his funds’ annual charges while at the firm.
Context may be relevant here, given that Henderson was desperate to keep New Star managers on board at the time it negotiated terms with Mr Pease. We’ve already had evidence of Mr Pease’s ability to drive a hard bargain via the unusual sight of the manager taking his European Special Situations fund with him when he set up Crux Asset Management last year. The new claims are eye-opening nonetheless.
In the coming weeks we’ll also get the now-traditional headlines about M&G bond manager Richard Woolnough’s annual pay packet. This, too, is not directly disclosed – the figure is found in Prudential’s annual report but is not officially attributed to a specific employee.
Make no mistake though – direct disclosure is on its way. The Alternative Investment Fund Managers Directive means multi-asset managers running non-Ucits funds will shortly see their pay disclosed in annual reports. Further down the line, Ucits V rules mean these portfolios will soon face similar demands.
Discussing pay in the UK has always been a bit of a social taboo. But the changes aren’t just notable for the way they’ll challenge that dynamic. As these measures come through, I imagine we’ll start to see a lot more examination of the rationale behind remuneration.
It’s not difficult to imagine how managers getting paid in relation to asset growth, rather than performance, produces all kinds of conflicts of interest. Greater disclosure is also likely to resurrect the question of how well-placed asset managers can be in stewarding other firms’ remuneration policies.
Fund managers may not like snooping on salaries, but more rigorous disclosure would be justified if it prompted a greater focus on these issues.