From the Editors

The threats that buffeted global financial markets in early 2010 have been followed by a sharp rally in financial assets as we head into year end. Investment flows have been redirected into higher-alpha, higher-margin asset classes as part of the “risk-on” trade, and the sentiment around hedge funds and alternatives is vastly improved.

Why, then, the outsized uncertainty among U.S. institutional investors? Many investors see current market levels as temporary rather than indicative of a trend, liabilities now significantly outstrip assets and return assumptions far exceed reality. The inflation vs. deflation debate rages on. Indeed, the basis for allocating across a basket of non-correlated assets no longer is an investment cornerstone. For the leaders of investment management firms, these pressures have highlighted a number of fundamental challenges: cost structures that could choke off profitability, compensation levels that continue to get bid up and a market environment that clouds strategic conviction. Among these challenges, it may be that strategic conviction—and the leadership talent it requires—is the most fundamental. In an industry that has held fast to traditional business models, this current period could be the catalyst for change to meet the needs of a new investor landscape.

The restructuring, and, in some cases, the reinvention, of wealth management across all segments may be one of the defining events of this period. Wealth management firms targeting the high-net-worth and ultra-high-net-worth market are establishing strategic paths that will set their course for the next decade. Platform is everything, and the choices are differentiated and discrete. In distribution-driven platforms, product excellence, flawless execution and footprint will define dominance. In full-service private banks, private bankers will need to act more like investment bankers; and family offices and advice-driven shops must have access to best-of-breed managers and be capable of addressing the stewardship of multi-generational trusts. Even at the retail level, the delivery and breadth of retirement investment solutions are being redesigned to address the needs of the next retirement generation.

Many hedge funds and alternative investment providers built up distribution muscle this year, seeking to displace traditional “style-box” mandates with absolute return-oriented strategies.

With a few very obvious exceptions, the same dynamism is harder to find among more traditional asset management firms. While the firms that went into 2010 with strong cultures and stable business leadership in place took advantage of the opportunity to further increase their investment capability, other firms are struggling. Leadership will be the defining element during this period of historic transition for the asset and wealth management industry: leadership to pick a strategic path, to foster decision-making models that generate innovation and to choose among competing priorities for reinvestment in businesses.

This 14th annual report of recruiting and compensation trends for the asset and wealth management industry highlights the key strategic forces at work and the corresponding implications for talent flows and compensation levels heading into 2011.

Summary Observations

• Hiring activity in the asset and wealth management industry was up significantly in 2010, albeit off 2009’s low base.
• We expect industry compensation to be up 10 percent to 15 percent in the United States. Canadian, European and Asia/Pacific employment markets rebounded more strongly, reflecting buoyant capital flows to non-U.S. markets. As a result, compensation expectations in those regions are running 15 percent to 20 percent above last year. However, given prolonged margin pressure, multi-year guarantees for newly hired executives and investment professionals continued to be the exception.
• Top-line growth was the focus of much of the hiring activity this year, though very few firms seemed to be in expansion mode; few added headcount on a net new add basis.
• Although much of the dramatic cost-cutting is over, firms still held the line on expenses. Doing “more with less” was the mantra; on the talent front, that translated into delaying replacement hires by expanding the responsibilities of existing executives—without a commensurate increase in compensation.
• While much of the “excess liquidity” in the employment market was absorbed, not all displaced investment and leadership executives found new opportunities.
• As some firms sought rapid turnkey entry into new markets, interest in teams was unusually strong this year, especially in the areas of global and emerging markets equities and high-yield fixed income management. Some of this demand was filled by the talent streaming off sell-side prop desks and heading for alternatives platforms.
• The industry continued to consolidate, with the top 20 firms capturing almost 90 percent of new asset flows due to superior product execution and stable business models. Recent consolidation will fuel additional consolidation, as those left behind resort to acquisitions to grow assets. This is especially true in wealth management, where organic growth is more difficult.
• Profitability will not likely return to pre-downturn levels anytime soon because of the current asset mix, cost structure and existing strategies for growth/investment. Leadership must have the courage to divert resources to areas of double-digit growth and away from stagnant or low-growth strategies.
• Leadership trumps all. The dearth of true leaders resulted in an uptick in creative appointments. The number of internal promotions into senior executive roles was dwarfed by the frequent decision to recruit from the outside.

General Management

• Demand for CEOs with investment backgrounds continued into 2010, yet finding qualified individuals with the desired mix of leadership and technical skills proved increasingly difficult. As a result, “best athlete” solutions were on the rise. In many cases, CEO talent was imported from other areas of the financial services industry, such as investment banking, capital markets and the securities business.
• Chief operating officer (COO)/chief administrative officer (CAO) searches were way off their prior pace this year. The supply of COO-level professionals with financial, legal or business backgrounds (rather than operations/technology) seemed to outstrip the number of open spots, as consolidations reduced the overall number of positions in the industry and made it increasingly difficult for displaced COOs/CAOs to find new homes.

Investments

• Recruiting activity for chief investment officers remained extremely strong again this year.
• CIO searches for university endowments, foundations, pension plans, family offices and sovereign wealth funds were at peak levels. While many were replacement hires, several were newly formed funds or offices.
• The competitive headwinds from numerous simultaneous CIO searches led boards and investment committees to consider creative, non-traditional solutions in addition to the tried and true. Hedge funds that failed to gain traction or otherwise closed in the face of depressed asset levels provided one source of talent.
• Some asset managers and wealth advisory platforms saw turnover at the CIO level. Again, in this instance, we witnessed some creative or stretch hires, where managerial prowess counted for more than one’s individual track record as an investor.
• In addition to the risk-on trades such as emerging markets and absolute return strategies that were this year’s investment hallmarks, institutional investors sought “liability management” advisory solutions. Although many of the larger franchise financial services platforms have had these teams in place for several years, several asset management firms built out this capability.
• Most investment leadership searches we saw for CIOs or asset class heads were for pure people management roles rather than “player/coach” positions.

Traditional Long-Only Equities

Hiring in the traditional, fundamental equity space—at a standstill in 2009—resumed this year. Global, international and emerging markets were the “in vogue” products and will remain so into 2011. Searches for long-only global, international (non-U.S.) and emerging markets equity portfolio managers and teams dominated our equity recruiting activity in 2010. Demand emanated from global firms domiciled in the United States, Canada, the United Kingdom and Europe.

Demand for domestic active equity portfolio managers and analysts, on the other hand, was virtually zero. Bottom-up, fundamental domestic equity stock pickers struggled to find new opportunities.

• Despite the challenges facing quantitative managers, we still saw interest in quantitative talent with Ph.D.-level credentials.
• Long-only equities continued to be treated with caution by investors in 2010. With the choppy stock markets, steady performance was difficult to achieve, and in-flows accrued to only a handful of strategies. Portfolio managers appeared to be selectively rooting out investment opportunities in the Next Eleven, but not to the point that there was a demand for investment professionals with a track record in these regions.
• There is a sense that investment management firms that remain too domestic in their offerings will continue to have a tough time attracting assets—and thus talent. On the other hand, we saw a spike in interest from U.S.-oriented firms for non-U.S. investment professionals. Much of this interest was for team moves, or acquisitions of boutiques, as opposed to an organic build. However, only those firms able to demonstrate a clear commitment to building out their non-U.S. business—as evidenced by a willingness to provide seed capital, open a non-U.S. office and ensure clear access to the distribution force—were successful in attracting talent.

Compensation

• Compensation for long-only domestic equity professionals will likely be flat to slightly down vs. 2009 and has a way to go before approaching 2007 highs.
• Equity portfolio managers and analysts who were successful investing in the non-U.S. markets outlined above will see their compensation rise significantly (perhaps as much as 20 percent or more) this year, as both a reward for strong performance and as a retention measure.

Traditional Long-Only Fixed Income

• With investors focused on return of capital instead of return on capital, the spotlight in 2010 again was on fixed income, at the expense of equities and alternatives. Returns, however, lagged the impressive 2009 levels, negatively impacting overall demand for buy-side fixed income talent. Additionally, an aggressive bid from the sell-side for senior fixed income producers put pressure on crossover candidates who could make the transition. The exception was recruiting activity in the high-yield investment arena, which continued to be strong.

Compensation

• For fixed income, 2010 compensation will struggle to get back to 2009 levels, which benefited from a strong performance rebound vs. 2008. In most cases, compensation for senior fixed income talent will be flat to slightly up. Junior talent and middle-office support are likely to be slightly higher, as retention of these individuals has become increasingly important, given the bid away by potential sell-side firms.

Hedge Funds

• If 2009 was the “road to recovery” for hedge funds, 2010 marked the return of cautious optimism. Although still wary, particularly following the stock market declines over the summer, most hedge fund managers selectively added and/or upgraded their talent. As one institutional hedge fund manager noted, “Investors are coming out of their bunkers.
• Assets began flowing back into hedge funds—slowly at first and then more steadily toward year end. With interest rates near zero and high volatility in the equity markets, alpha-seeking investors once again turned to alternative investment strategies for attractive, risk-adjusted returns, and hiring activity followed suit.
• As one fund of funds CIO observed to us, this was a reasonably good year for credit funds and other event-driven strategies given the opportunities associated with bankruptcies, restructurings and M&A activity. Liquidity in the high-yield and distressed secondary markets was greatly enhanced by the re-opening of the new-issue window. Given that many believe the current low interest rate environment will be prolonged and accompanied by a gradually improving macro credit picture, it was not surprising that the growth and interest in credit shops continued to increase throughout the year, and demand for credit talent—analysts, portfolio managers and sales professionals—remained strong.
• Many credit and event-driven firms upgraded their operational infrastructure through acquisition and/or talent infusion in order to better position themselves in the eyes of investors. Once ready for a higher degree of scrutiny, these firms then added marketers. Credit funds that developed sales teams looked to augment them with product specialists who bring deeper technical credit expertise.
• Interest in global emerging markets is increasing, according to one multi-strategy hedge fund CIO. Many managers grew their global emerging markets teams, with knowledge of Latin America (specifically Brazil) being of particular interest. We saw demand for team liftouts, preferably with a portable track record to bring instant credibility and, preferably, assets. Several emerging markets managers also developed long-only products with reduced fee structures to satisfy investor appetite for these strategies. They sought emerging markets specialists from long-only platforms to help develop these new products, putting further pressure on long-only players.
• The ban on proprietary trading at banks created an opportunity for hedge funds to capture talent moving out. Regulatory uncertainty occupies the minds of many, in the words of one hedge fund COO. Some managers responded by proactively adding talent with regulatory expertise to advise on current rules, to help predict future legislation, and to advantageously position their firms and portfolios. In addition, more managers invested in the related functions of their operations team, including financial reporting, accounting and risk management.
• It’s become harder to start a hedge fund, one hedge fund manager frankly admitted to us. Large pools of institutional capital flowed to well-established managers. In addition, fund-of-funds, which historically have been an important source of capital to new hedge funds, have seen their assets shrink since the credit crisis and have slowed their investments with start-up managers. As a result, new managers were challenged with finding strategic/anchor investors to provide seed capital to launch first-time funds. While 2010 saw more hedge fund start-ups than 2009, asset size at launch was lower, and the bar for seed capital remains high. With these constrained operating budgets, start-ups sought versatile talent who could wear multiple hats (for example, COO and head of marketing and legal counsel). Incubator fund platforms looked for experienced hedge fund analysts and operational due-diligence professionals.
• Hedge fund managers have increasingly thought about passing on the equity value of their firms to the next generation. Generational planning is front and center, according to one accelerator fund CIO. In 2010, we received several inquiries from founders of successful hedge funds seeking ways to address the challenge of succession planning. As another CEO pointed out: If this industry is to grow larger and take market share from long-only managers, it’s going to be because we’ve built a solid, sustainable business and have ensured a legacy for the next generation of hedge fund leaders.

Compensation

• This will not be the year of the ‘golden goose’ as one hedge fund head of human resources observed. While many hedge funds experienced positive performance in 2009 and exceeded their high-water mark, the majority of managers produced flat to slightly positive returns this year. While it still is too early to predict, 2010 bonus pools may remain static relative to 2009 levels. Increased payouts will be more likely at credit shops, for back-office employees earning less than $150,000 in total compensation and for those few funds that significantly outperformed.
• Succession planning strategies will likely lead to increasing equity (and phantom equity) compensation plans, as well as deferred compensation schemes designed to stabilize the talent base. A recurring theme is the alignment of incentive plans with the interests of investors, whereby a greater portion of bonuses is reinvested in the funds or is subject to clawbacks based on future performance.
• Although sell-side firms increased base salaries, we have not seen a corresponding trend in the hedge fund universe.
• Hedge fund marketers continued to see increases in total compensation given the unwavering demand for their skill set, and one-year guarantees became typical for newly arrived talent. Compensation models for salespeople moved from purely formulaic commission to subjective bonuses. This helped incentivize sales professionals to focus on the management of existing client relationships and the retention of assets in addition to developing new relationships and raising new assets, but it makes apples-to-apples comparisons across this segment of the industry more difficult.

Real Estate

• Investors began allocating capital to real estate again, slowly and episodically, although many allocations remained unfunded. There is a continuing preference for domestic, core or core-plus assets. Many investors found other like-minded investors and returned to a variation of the “club” investment structure rather than investment in a full discretionary blind pool of assets. There was a renewed interest in investment talent who specialized in core assets, and we completed several senior head of acquisitions or CIO searches for core investment teams.
• Firms continued to augment their investor relations/capital-raising teams with individuals having key institutional relationships. To tap into the growing pool of foreign investors, U.S.-based executives able to import capital from Asia, Australia, Europe and particularly the Middle East were in high demand.
• The year began with the expectation of significant transaction volume. That did not materialize—in part because the market did not fall as much as many investors hoped—and so most real estate investment firms remained hesitant in hiring investment professionals. While those investment professionals now are back in the saddle at well-capitalized firms after being shoehorned into asset management roles, there remains a frustrating dearth of quality investment opportunities fitting into value-add or opportunistic strategies.
• Like private equity firms, real estate investment firms generally looked to enhance portfolio value by hiring strong operating leadership for their assets and building succession plans for the senior executives and functional executives of their operating companies.
• “Real assets” rather than just “real estate” assets were a subject of interest in core real estate strategies. Although only in its infancy, we did see some requests for investment professionals who understood energy- and transportation-related infrastructure. Similarly, distribution professionals who can tell a broader infrastructure and real asset story also were actively sought.

Compensation

• The low level of capital raising, few transactions and the depressed value of many portfolios mean that real estate-related fees to asset management firms are up only slightly from 2009. As a result, we expect 2010 compensation to be flat or only slightly up from 2009 in this sector.
• More than ever, compensation will be driven by firm economics rather than by peer group. Those that can pay, will; those that can’t, won’t.
• For seasoned executives in key functions, employers once again were willing to provide guarantees to lessen the perceived “risk of the trade” but at levels less than the all-time highs of 2007. Additionally, these one-year guarantees may be flat to down over last year’s compensation at the previous employer.

Private Equity

• The past year saw the much-awaited thaw in deal flow. Debt became more available, firms with well-performing operating companies grabbed the opportunity for above-water exits and investors looked to put as much as $500 billion in “dry powder” to work.
• Even with the prospect of rosier times ahead, firms carried with them the harsh lessons of the last three years. Operating knowledge remained king: before acquisition, to strengthen the due-diligence process and better separate the wheat from the chaff; and after acquisition, to help guide portfolio companies to the improved profitability that drove the investment.
• As a result, there was heightened competition for experienced operating partners and advisors— industry veterans who have the insight to spot opportunities, the networks to bring decision makers to the table and the gravitas to effect change when the organization joins the portfolio. C-level executives from industries drawing private equity attention—business products and services, consumer products and services, healthcare, energy and financial services—were particularly sought after.
• Demand picked up for experts in functional areas who can drive big bottom-line impact, such as supply chain management, real estate and insurance.
• In contrast, there was little demand for the financial expertise of former bankers; firms are attempting to differentiate themselves by creating value through improved operating performance rather than through financial engineering.
• Limited partners continued to focus on fund manager due diligence, investment process and transparency. This has into demand for more sophisticated investor relations professionals.

Wealth Management

• The dominant names in wealth management churned rapidly, as small boutiques gained market share and the largest national brokerage platforms consolidated. All but two of the top 40 firms in the business lost or gained ground in 2009 and early 2010 against 2008 levels.
• The dramatic shift to credit products significantly benefited a narrow segment of competitors. The exodus of clients and advisors from the traditional large brokerage format remained a challenge to those firms. Winners included boutique private banks, independents and registered investment advisors.
• The key to retaining top-producing advisors centered on open architecture, a strong brand without controversy, and a full suite of support services such as trust and risk management. Firms that offered guaranteed income products and alternative strategies also were more attractive to advisors.
• In the mass affluent segment, the continued focus was on solutions-based advice under traditional fiduciary standards that included attention to liquidity, longevity and wealth transfer, not just diversified asset allocation.
• Boring is the new brilliant became the mantra, as firms returned to the basics to get business back on track. In the minds of wealthy clients and advisory talent alike, quality programs were those defined by integrity, transparency and simplicity.
• Significant regulatory uncertainty gave numerous market participants reason for pause and created opportunities for others.
• Firms planning for modest (rather than aggressive) growth through the uncertainty of the next several years appeared to be gaining the respect and trust of employees and clients.

Institutional Distribution

• Investors put more demands on their managers to rebuild trust, increase transparency and provide more value-added, timely information flow. Many managers responded by keeping their generalist sales professionals in place and building a support infrastructure behind them that included product specialists, client portfolio managers and stronger marketing groups. Other managers upgraded front-line talent and demanded more product-savvy distribution professionals.
• Institutional, as well as retail, investment firms upgraded and redefined the marketing function to support distribution with strategic talent who can focus the firm on the most advantageous markets, design and develop compelling products targeted for appropriate investors, and effectively articulate the value add for their firm.
• Pricing was affected by the flow of assets to strategies with lower fees, and firms attempted to offset this flow by moving toward more complex, value-add structures. Thus, there was greater demand for sales professionals who can have discussions about both sides of the balance sheet or the long-tailed liabilities such as benefit payments or insurance risk and the allocation of assets to meet

those obligations.

Compensation

• Compensation will generally be up another 10 percent to 15 percent over 2009 and higher for top-decile performers. We still are not at the compensation highs of 2007 except for alternatives firms, which are nearing those levels—if they ever left them. Institutional distribution talent continued to drift toward the alternatives space and commanded annual packages at or greater than $1 million. Senior distribution talent, managers and individual producers were well north of that, edging into the $2 million range.
• The use of guarantees or annual minimums to define the downside risk of switching platforms was commonplace. We saw multi-year contracts at “de novo” firms or rebuilds.
• Compensation levels varied significantly by product expertise. Distribution professionals who understood long-only fixed income credit strategies were in high demand, as many alternative collateralized loan obligation-based businesses sought to diversify their strategies away from the self-liquidating collaterized structures. Individuals with this profile who could significantly tap into the pool of long-only fixed income investors won multi-year, aggressive compensation schemes, with total annual compensation approaching $2 million.
• The demand for chief marketing officers who could make a strategic impact and sit as equals on operating committees drove their compensation to the levels of their investment and distribution counterparts.

Retail Distribution

• Despite the brightening prospects for many retail investment firms and the significant demand for key talent in other areas of the industry, the talent market in retail distribution remained stagnant. For example, the hiring of additional wholesalers by several mutual fund firms with strong credit products was the result of opportunistic hires of professionals displaced by the earlier downturn in late 2008-early 2009 rather than a broader trend that added to the overall demand in the sector.
• The hiring that did occur tended to be for executives to support new products related to pre- and post-retirement advice and guidance models, intermediary channel initiatives in the registered investment advisor/independent area and new media marketing initiatives.
• Several of the larger and more innovative alternative investment firms explored new retail distribution channels targeting the ultra-high-net-worth category via strategic partnerships with boutique private banks and the development of sophisticated registered investment advisor channel initiatives.

Compensation

• Compensation expectations are flat against last year, and new hires during the course of the year received low premiums and limited guarantees. New recruits were still being paid first-year deals well below the peak rates of 2007, and existing employees, unless the beneficiaries of strong credit or international equity product flows on commission, will not see their compensation return to even 2008 levels.

Technology and Operations

• 2010 proved to be a rebound year in the technology and operations (T&O) functions of many investment and wealth management firms. While T&O investments by the largest firms remained static, independent/boutique and family office market segments made substantial investments in T&O spending and hiring. Hedge funds and specialty asset management businesses (such as quant shops) saw continued success in luring leaders from traditional players and, for the first time, family offices committed themselves to building T&O functions that reflected a greater emphasis on transparency and improved reporting mechanisms.
• The proven ability of chief information officers to drive consolidation and automation of systems, and thus lower costs, gained the T&O function visibility with executive committees and boards. The function aligned middle- and back-office people, processes and technology with front-office activities—and subjected those functions to greater scrutiny as part of the firm’s overall governance and service delivery.
• Continued investment in T&O, however, did not necessarily mean keeping the function entirely in-house; many financial services firms, for example, turned to outsourcing providers. These providers targeted the buy-side and developed and deployed services that automate and optimize the workflows and business processes of those firms. In response to this expanding market, a handful of buy-side firms launched their own service provider firms built on the intellectual property that they developed over years of owning their T&O capabilities. Time will tell whether these new ventures can compete over the long term with established outsource providers.
• As work flowed to third-party providers, executive talent followed: Top executives from operating roles on the buy-side moved into broader general management roles with service providers (such as EXL Service and SAP).
• T&O was integrated into organizations’ overall risk management and compliance plans. Firms became increasingly aware of the ability of T&O to serve as a key link in creating the enterprise transparency necessary to effectively manage complex businesses that face increasingly more stringent regulatory scrutiny.

Compensation

• Compensation for T&O executives in 2010 will be flat to up 15 percent to 20 percent against last year. Despite continued market volatility, this function has turned the corner, and the need for top technology and operations talent is growing, putting continued upward pressure on base salaries and total compensation.

Risk/Legal/Compliance

• Financial institutions continued to focus on realigning and restructuring their risk management teams not only to manage and mitigate regulatory concerns but also to work more effectively with the business lines. Following the collapse of Lehman Brothers, and near-collapse of AIG, Fannie Mae and Freddie Mac, asset managers and banks were compelled to focus on enhancing all of their risk management processes to allay investor and regulator fears about financial soundness. However, in 2010, many institutions began to take this to the next level and focus on how effective risk management functions and processes can be additive to business performance. This led to the centralization of some functions like credit policy and counterparty risk at the corporate level, along with balance sheet management. Simultaneously, organizations moved to establish business-unit risk functions.
• These developments resulted in increased demand for risk managers who have had line or profit/loss responsibility at some point in their career. There also was increased emphasis on individuals who have the demonstrated ability to work effectively with investors, bankers and traders. The ability for a risk manager to influence and convey the business imperative of risk management at all levels of an organization remained of utmost importance.

Compensation

• The pool of risk managers with the above competencies is limited. As a result, there was a commensurate rise in the compensation packages for experienced and respected risk managers. For the most senior risk managers—the chief risk officers and leaders of credit and market risk— overall compensation continued to increase from 2008 levels. In addition, organizations were willing to give substantial increases in guaranteed or base compensation in order to recruit top talent. As more institutions continue to stabilize their business and settled on risk frameworks in 2010, compensation levels will be up moderately over 2009.

Financial Officers

Compensation

• Total compensation for financial officers is expected to be flat to 10 percent above 2009. Firms have not yet had to pay large premiums to attract new talent.

Regional Highlights

Outside the United States, the recovery trajectory of the asset and wealth management industry varied widely, depending on local economic conditions and investor priorities. We noted the following developments around the world:

Canada

• 2010 compensation levels are expected to rebound from 2009, with overall compensation levels across this sector expected to increase by 20 percent to 25 percent. However, given the uncertainty in the marketplace in the second half of the year, these percentages may be

moderated before year end.

Mexico

• Clients left the independent investment fund industry in a flight to quality and took cover at well-established financial groups with commercial bank subsidiaries, fueling double-digit growth for those organizations. In response, some independents migrated from being product/fund distributors to being solution providers for specific client needs. This drove demand for product development talent who can design specialized portfolios, sales talent able to provide the corresponding sophisticated advice, and portfolio architects who can design solutions for different client risk profiles based on product offerings.

• The wide range of product offerings—both local and international—and the portfolio solutions they can provide yielded good results to the independent investment funds. Better risk-weighted returns solutions now are ready to be marketed to clients looking to satisfy specific investment/future consumption needs.
• Private banking divisions at both local and international banks that avoided major problems during the crisis and were able to maintain their solid platforms in Mexico sought to attract private bankers with sound track records to complement their local distribution capacity. These franchises filled the voids left by those private banks that lost clients due to poor performance and attracted top talent seeking strong platforms to service their assets under management.
• Afores (defined contribution retirement funds) remained underinvested in talent. The pool of funds managed by Afores reached nearly 12 percent of annual gross domestic product (GDP). As the industry matures and clients become more aware of their responsibility regarding their retirement income, there is a continued shift in client emphasis from commercial strength to the maximization of returns.
• Alternative investing at Afores took hold in the Mexican market through Certificados de Capital de Desarrollo. Infrastructure, buyout and real estate private equity funds already have funded their equity through this pre-funded certificate, in which Afores are the acquiring limited partner. As a result, Afores sought the right talent to both conduct due diligence on the certificates and then to sit on their sponsored company boards to monitor their investments over time.

EMEA

• 2010 saw a material pickup in the hiring of talent focused on emerging markets in both debt and equity, as well as global equities. Firms sought to lift out entire teams as a turnkey path to establish proven investment process and performance track record and gain quicker traction in asset growth. On the distribution side, the most active channel was the quasi-institutional channel, including insurance asset management. Exchange traded funds (ETF) enjoyed significant growth, as clients sought cheaper beta for the core of their portfolio. Demand for talent with the ETF space far outstripped supply, and, as a result, firms growing in this area had to hire latterly.
• The Middle East, where the credit crunch hit late but hard, saw some return to hiring, particularly for Middle Eastern institutional asset gatherers.

Compensation

• We anticipate total bonus pools for 2010 to be up, on average some 15 to 20 percent vs. 2009. While for many, the size of the bonus pool still is down from 2007 peaks, some of the more successful firms are back to near-peak levels given reduced cost bases and improved performance and revenue growth. Generally, candidates are more receptive to a move today than they were a year ago, when macro uncertainty was high. Clients generally are having to guarantee one year’s compensation, but multi-year deals are not the norm in this market.

Asia/Pacific

• In 2010, the Asian asset and wealth management industry expanded further, as existing entities— particularly investment banks and insurance firms—in the Asia/Pacific region, as well as in Europe and the United States, either have been broadening or establishing operations there. Asset management companies looked to enhance their investment management process, build or rebuild

their retail distribution and institutional sales capability, and undertake corporate finance activity.

Compensation

• Compensation within the Asian asset management industry for 2010 will be up 15 percent to 25 percent vs. 2009. “Risk of the trade” continues to drive first-year guarantees, and multi-year deals also are expected to become more common in 2011. In the sales function and where demand has been greatest, recent market moves have commanded compensation close to 2007 levels.

Looking Ahead

2011 looks promising for the industry, as firms continue to invest in themselves. Improved asset levels should boost profitability, and we expect recruiting activity to be up modestly, continuing 2010’s positive trends.

• We expect little change in recruiting patterns for equity investment professionals as we head into next year. Our sense is that global/international/emerging markets expertise will continue to enjoy strong demand, while search activity for U.S. domestic equity stock pickers will continue to be slow.
• Fixed income hiring will be heavily predicated upon a number of market factors. If asset prices continue to improve, liquidity returns to the secondary market, the new-issue window remains open and interest rates begin to rise to more tradable levels, there will be a notable increase in the demand for talent. If we remain stuck in a trendless, low interest rate environment, however, hiring momentum will be impeded significantly.
• The unwavering demand for multi-asset class expertise is expected to persist, as the need for asset allocation advice and guidance will continue to be very strong among institutional, retail and private wealth market segments.
• Hedge fund managers will exhibit growing confidence to scale their organizations—if market conditions hold relatively steady. Institutional assets will continue flowing toward larger hedge fund managers, and there will be fewer, and likely smaller, successful new launches. We also believe that a significant number of smaller, less-institutionalized firms that have been struggling to survive will capitulate and close or merge into larger organizations. To compete for coveted institutional assets, firms will continue to build out their sales and marketing teams. With intense scrutiny by investors and the likelihood of additional government regulations, managers will continue to invest in their operational infrastructure. Investment performance and world-class infrastructure will determine the next generation of top managers who, in the process, will attract and retain top talent to service clients well.
• In institutional distribution, there will be a premium on leaders who can impose the discipline to divert resources to areas of double-digit growth and away from stagnant or low-growth strategies. Emerging markets (BRIC and Latin America) constitute 10 percent of assets today but will grow to one-third of assets over the next five years because of higher GDP growth in those countries. Distribution professionals who can garner capital for investment in those markets, or who can develop key strategic partnerships with sovereigns or local firms, will be in high demand.
• In real estate investing, it will continue to be a buyer’s market for acquisition talent into 2011. While much of the free mid-level talent has been absorbed in New York, there remains a tremendously high amount of un- or underemployed acquisition talent throughout the rest of the United States. At the same time, transactional teams will continue to be augmented, particularly if an investment executive

can bring a particular specialty to the platform, such as infrastructure.

Leadership for a Changing World. In today’s global business environment, success is driven by the talent, vision and leadership capabilities of senior executives. Russell Reynolds Associates is a leading global executive search and assessment firm with more than 300 consultants based in 39 offices worldwide. Our consultants work closely with public and private organizations to assess and recruit senior executives and board members to drive long-term growth and success. Our in-depth knowledge of major industries and our clients’ specific business challenges, combined with our understanding of who and what make an effective leader, ensures that our clients secure the best leadership teams for the ongoing success of their businesses. www.russellreynolds.com