The Benefits of Working in Asset Management
When considering a career in finance, investment banking is usually the first choice, not just on account of the money and prestige that go with the job, but also because of the flashy lifestyle associated with being an investment banker. This image is partly the reason why a lot of graduates opt for the sell side of Wall Street without giving the issue much thought. This, however, leaves the field of asset management highly overlooked and quite unjustly so, given that a shift in the balance in global capital markets following the financial crisis has made working in asset management a very lucrative option.
While both investment banking and asset management are contingent on economic cycles, asset management is impacted to a smaller extend by global economy downturns, as evidenced by the 2007-2009 financial crisis which prompted global financial institutions to shrink their investment banking units. Britain’s Royal Bank of Scotland is one such example, having grown to one of the biggest in the world before the financial crisis and having shrunk significantly since then, trimming its global investment banking operations and focusing on domestic retail operations.
If we take a look at one of the main revenue generators for investment bankers, namely mergers and acquisition deals, there are plenty of those during periods of economic well-being but when the world economy slows and investment sentiment is subdued, the deal pipeline also slows down, leading not only to smaller bonuses, but also to cuts to investment banking jobs.
By contrast, asset management provides a relatively stable career when compared to some other financial services jobs, relying on not just the infusion of new cash into funds but the task of managing money which already exists in the system.
Asset management companies benefit from the fact that even in periods of economic downturn, assets are always invested. In addition, such companies tend to have a more diverse client base including pension funds, insurance companies, as well as wealthy individuals, providing more channels of income.
In addition, just like investment banks, asset managers also benefit from ultra-low interest rates since the financial crisis which has prompted investors to seek for high-yield assets in which to invest their money.
Growing Pay Pot
Before the financial crisis, the investment bankers’ paychecks were one of the main reasons why the job would be preferred over working in asset management. This trend, however, has largely been reversed since, with the financial turmoil having prompted cuts to salaries and bonus pots. In Europe for instance, the EU has introduced a cap on bonuses as a percentage of salaries.
Asset managers, on the other hand, have seen their pay rise in the past few years. According to new research by think-thank New Financial, asset managers are set to be paid more by investment bankers by 2016. The research also shows that average pay per employee at asset management firms has increased by one fifth to $263,000 since before the crisis and has been rising steadily for the past decade. Pay in asset management used to be half the level of investment banks. Last year it was more than 90%.
“Investment banking staff are taking a shrinking portion of a shrinking pot,” William Wright, founder and managing director of New Financial, said in the press release accompanying the research. “Asset managers are taking a constant portion of a growing pot.”
In addition, those looking for a prospective career in asset management can count on a favorable hiring trend. Financial News last year reported that Deutsche Bank’s asset management arm for instance was planning to double the number of financial professionals it employs in London to 600 over the next five years.
Morgan Stanley CEO James Gorman told the Wall Street Journal last year that asset management was poised to become the single-largest segment of financial services, with users of capital becoming providers of capital in newly developed economies and with an aging global demographic set to create an inevitable shift from consumers to savers. A burgeoning global middle class is expected to create an enormous pool of savings in search of investment, for which they would seek professional advice and execution.
Moving to the other side of Wall Street
Despite the relatively higher popularity of investment banking, the benefits of working in asset management haven’t gone completely unnoticed which is why a lot of investment bankers are either considering moving to the “buy side”, or have already made the move. And rightfully so, while being less flashy, the buy side of Wall Street does have a lot to offer both to those considering a change and those who are yet to kick off their financial career.