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US asset managers are launching their second wave of job cuts this year, with Charles Schwab, Prudential and Invesco each announcing cost controls amid a flight of clients to safer investments with lower fees.
Schwab and Prudential have disclosed plans in recent days to cut approximately 2,000 and 240 positions, respectively. Invesco last month announced severance and reorganization expenses of about $39 million in the third quarter of 2023 – about twice as much as expected – while posting a slight decline in headcount.
While not as significant as the widespread layoffs in early 2023, the cost cuts reflect asset managers’ cautious outlook after their hiring spree in 2021. They were then competing for talent in a booming market, but now face falling fees, strategic asset outflows and shrinking margins, said Chris Connors, director at compensation consultant Johnson Associates.
“I don’t think there’s an overly optimistic outlook for 2024 in traditional asset management,” Connors said. “It’s more cautious and moderately pessimistic.”
Asset managers expect more of the same in 2024 and are taking steps to control costs, including through attrition and job mix. Connors said he estimates a 5 to 10 percent drop in year-end asset management incentives in 2023 compared to 2022.
The gloomy outlook has coincided with an influx of liquidity into money market funds, mainly in the United States, with investors hoping for returns of 5 percent or more for less risk. These flows peaked in the spring when the regional banking crisis in the United States prompted investors to seek safer havens to place their funds.
Asset managers are also grappling with continued outflows from traditional mutual funds, while exchange-traded funds – which trade like stocks and benefit from preferential tax treatment – have benefited from inflows. growing in recent years.
Schwab, which oversees about $7.8 trillion in client assets and manages nearly $1 trillion through its asset management arm, confirmed it was laying off 5 to 6 percent, or about 2,000 people, of its 35,900 employees, “largely in non-client sectors”. facing areas.
“These were difficult but necessary steps to ensure that Schwab remains highly competitive, with industry-leading efficiency levels, for a long time to come,” the company said in a statement.
Prudential officials predicted, in a call with analysts last week, a $200 million “restructuring charge” in the fourth quarter as they continue to try to increase PGIM’s assets under management, l The insurance company’s $1.3 billion asset management business. Bloomberg earlier reported that Prudential would cut about 243 employees, including senior management positions.
Invesco, which manages about $1.5 trillion in assets, previously estimated that severance and reorganization expenses would total $20 million in the third quarter, only to report $39 million of these costs and an additional $15 million to $20 million expected in the fourth quarter. He anticipates this will result in savings sooner than expected.
“Part of the increase in severance and reorganization expenses in the third quarter is because we realized some of those savings, so we would start to see the benefits in the fourth quarter,” the CFO said. Allison Dukes during a press release. earnings call last month.
Companies are also looking beyond staff to control costs. Franklin Templeton, which has embarked on a series of acquisitions in recent years, including a more than $1 billion deal for Putnam Investments, is attempting to create a single third-party platform for portfolio management, trading, compliance, cash management and risk management. used by the entire $1.4 trillion Franklin Group, including its new specialist managers.