Institutional investors aiming to competitively recruit and nurture talent need to create an environment of transparency, inclusion and flexibility within their organization, according to a variety of sources in the asset management industry.
Asset owners used to battling for top talent currently face even more pressure to attract and retain quality staff. Many asset management professionals are reaching retirement age, which is opening up a gap in the workforce, says Alyssa Stankiewicz, Morningstar’s associate director of parent research.
“What we are seeing is an upcoming cliff of successions,” Stankiewicz says. “There are a lot of professionals in the industry that got started in the 80s and 90s, and they are getting ready to transition to retirement. Any sort of large-scale change in the industry is bound to affect everybody, and that’s true of institutional investors as well.”
A Major Operating Issue
While Morningstar analysts cover asset management firms, some of the team also researches and issues ratings for institutional investors, like large Mexican pension funds, 529 college savings plans and target-date funds, giving them insight into trends and challenges for asset owners, according to Stankiewicz.
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“Something we talk about a lot is succession planning: really thinking ahead to ensure as smooth of a transition as possible. We have seen this cliff coming up for a while now,” she says. Many organizations have been “proactive about building up their bench of investment talent. They are naming co-managers on funds and trying to reduce key person risk. They’re allowing the next generation to get practice running funds. “
Over the past decade, for instance, the percentage of active funds run by single portfolio managers has dropped, Stankiewicz says. As of the end of 2024, fewer than 14% of actively managed funds had a single portfolio manager, a figure down more than 10 percentage points from 2014, according to Morningstar’s research.
Many asset owners view recruitment and retainment of high-quality talent as one of their biggest operating issues, a 2024 academic paper by Stanford University’s Dane Rook and Ashby Monk found.
“A common manifestation of the [attraction-and-retention] problem for many institutional investors is the purported ‘missing middle’ issue, whereby their organization’s workforce is composed disproportionately of workers at the beginning and ending years of their careers,” the paper stated. “The most popular explanation that is given for this situation is that mid-career professionals can typically earn higher pay in roles at sell-side entities, which makes attracting and retaining them relatively harder than is the case for early- or late-career professionals.”
The paper noted that fair pay, including compensation benchmarking, is therefore critical to attracting and retaining top talent. This can entail revisiting and reassessing employees’ compensation expectations, as market norms related to pay and other benefits are often shifting, Rook and Monk wrote.
Institutional investors should also make sure they are competitively paying professionals in operations and technology roles, rather than just focusing on portfolio managers or “others close to the money” in the industry, according to the paper.
Diversity in the Investment Process
Morningstar’s Stankiewicz says that asset owners should be willing to recruit professionals from different cultural and educational backgrounds, to promote diverse ideas and viewpoints in the investment process.
That can look like “being willing to look at backgrounds that don’t come from the major you’re focused on [hiring from],” she says. “For example, being willing to look for folks for investment management teams with computer science backgrounds, who might be great at covering the tech sector. I think that [strategy] carries into technology and risk management roles as well.”
“In risk management, it’s important to be able to build relationships with the portfolio management team. You don’t want animosity in that relationship. You want good connections. I think it is more about understanding the type of culture you’re trying to build,” she explains, noting that some organizations may have a team structure in which the risk and portfolio management teams work more independently of one another, whereas other organizations may foster a more collaborative environment between these departments.
Asset owners can also structure their investment teams to encourage diverse opinions by designating a person to play the “devil’s advocate” role for investment decisions, she adds. This could be a lead analyst working with another investment professional, who also knows the coverage area but plays devil’s advocate to bring depth and differing viewpoints to the investment process, Stankiewicz says.
“I think the introduction of some sort of devil’s advocate role can really help to offer diversity of thoughts and ideas,” Stankiewicz says. “It’s not just about hiring people from diverse backgrounds, but welcoming their viewpoints in the investment process itself. Also, [investors can] rotate coverage of stocks, investment ideas or even asset class coverage. It helps keep the analyst fresh. It’s almost like cross-training in any other industry. Rotating what your focus is can give you a new perspective.”
David Martin, the CEO and CIO of Arctium Capital Management, shares that institutional investors should create an environment that prioritizes internal mobility for employees—while laying out clear pathways for progressing within the organization.
When it comes to attracting and retaining talent, investors should be “forward thinking, not backward thinking,” Martin says. “Think about your organization from the perspective of: Where are we going? And what do we need?”
The Future of the Work
Martin also recommends that organizations embrace flexible working arrangements.
“I think it’s good to have people know who they work with, so they can interface with each other, learn from other people and learn from teamwork—but within limits,” Martin says. “Does everybody need to attend the meeting? Can some people attend in person, and others remote? What difference does it make if the person’s physically there or not? We need to manage the situation so people can have their work and they can have their lives.”
The academic paper co-authored by Rook and Monk noted that remote or hybrid work arrangements can be successful, as long as there is clarity and “straightforward policies” around these work models.
“In partly or fully remote [work models], there is a need for more active cultivation, which might occur via regular email reminders, recurring training sessions, or branded messaging on internal documents (for example, listing company values),” the paper stated.
Because remote and hybrid work models can raise challenges for institutional investors, like communicating and enforcing an organization’s culture, Rook and Monk recommended that investors foster a sense of connection between colleagues by having “anchor days,” on which all individuals on a team or at an organization come into the office, or more irregular “on-site” days for employees.
Tags: Alyssa Stankiewicz, Arctium Capital Management, Ashby Monk, Asset Management, asset management culture, Dane Rook, David Martin, Investment Team Structure, Morningstar
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