Even with the stock market’s recent bounce, money management firms will have to shed at least 5 to 10 percent more of their workforces to keep the equity market’s swoon from crushing profit margins, industry veterans say.
But following the trimming in recent months of the layers of fat most firms accumulated between 2003 and 2007, the coming corporate liposuction will require care to avoid taking out muscle and bone.
The dearth of recent layoff news is a testament to how difficult the next round of restructurings will be, said Alan Johnson, managing director at executive compensation firm Johnson Associates in New York.
With the full brunt of the equity market’s post-September implosion poised to hit this year, money managers should act decisively to correct the high cost structure the industry entered the current financial crisis with, marked by “too many products, too many strategies and too many expensive financial professionals,” Johnson said.
Other industry observers anticipate a quieter scenario. Providing the market doesn’t drop precipitously again, the “big newsworthy cuts” of the past half year should give way to a more focused rationalization of noncore operations—with firms quietly letting go “10 people here, 15 people there,” predicted Bob Gorog, a Boston-based partner with executive recruiter CTPartners.
Johnson said larger money management firms might face the biggest challenge adapting to new market conditions, just because they are bigger and have more layers.
Firms that have continued to shed staff in recent weeks include two Boston-based managers: giant Fidelity Management & Research and quantitative equity boutique Batterymarch Financial Management. At Capital Group, the Los Angeles-based retail and institutional heavyweight, employees were warned that another round of layoffs, the company’s third since November, is likely by June.
According to money management executives, who declined to be named, Fidelity laid off roughly 30 of the firm’s equity research analysts and 10 traders during the last week of February—soon after the company said in its annual report for 2008 that it had weathered the market debacle better than most.
Some observers said those cutbacks—the biggest layoff of investment professionals by Fidelity in memory—simply reflected the fact that the company had added more than 200 analysts globally over the past three years, lifting its total to a jaw-dropping 500 or more.
Fidelity spokeswoman Anne Crowley declined to confirm the analyst firings, but said any layoffs being conducted now would be part of the planned cut—announced months ago—of 1,700 of the group’s more than 44,000 employees in the first quarter.
Crowley said Fidelity isn’t backing away from its goal of fielding the industry’s strongest team of analysts and noted the firm is moving ahead with plans to hire 30 business school graduates for analyst positions later this year.
Money management executives, who declined to be named, predicted more such cuts in the industry.
“Do the math,” said the head of sales for one equity boutique: Revenues are down 40 percent or more, and cuts so far have been on the order of 10 percent. Some firms have done big layoffs of 10 to 15 percent, while others are doing 5 percent and another 5 percent and so on, he said.
Capital Group, which laid off a combined 6 percent of its global workforce in two earlier rounds, sent a memo March 9 to its roughly 8,900 employees saying that “we anticipate further job reductions” by June 30, the end of the company’s fiscal year, said spokesman Chuck Freadhoff.
While there are no details on the scale of those coming layoffs, Freadhoff said it was best to let employees know the possibilities as they make plans, such as moving ahead with major purchases. He said a short-term market rebound by June could have some effect, but probably wouldn’t substantially alter the company’s calculus on its needs in the current environment.
Filed by Douglas Appell of Pensions & Investments, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.
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