I work with a number of Asset Managers, and often talk to developers who currently work for Investment Banks about making a transition into the buyside. A concern that comes up again and again is the bonus – developers who work for the banks often struggle to believe that the bonus at an Asset Manager really is larger than at a bank. And its easy to see why, after the last 3 years of low to non-existant bonuses, many developers now only value the money in their hand – the fixed income before bonus – rather than promises of a bonus that in their experience may not materialise.
But the fact is that ever since the financial crash in 2008 bonuses across the buyside have remained steady. So why is that?
Regulations
The primary reason that the buyside tends to pays higher bonuses than the investment banks is because the blame for the 2008 crash was landed squarely on the investment banks (although to be honest I don’t remember Northern Rock ever being part of the “bulge bracket”), and since then the banks have been placed under an increasingly heavy weight of regulations – Solvency II, MIFID II, Basel III, and Dodd-Frank are probably the most well known.
This has had a two-sided affect upon bonuses, one is that there is simply less money to go around due to lower profits, and two is that bonus payments are actually being restricted by regulations and the general scrutiny that banks are placed under by the press. Most of this is aimed at the traders and senior management, but the affects have obviously trickled down to all employees.
More money to go around
The fact is that there is simply more money on the buyside than at the investment banks. Not only have hedge funds and asset managers continued to be profitable in the last 5 years (with the notable exception of Man Group), but due to lower numbers of employees working in the buyside the ratio of money to employees is far more favourable. Playing around with some figures (market cap to employees) I worked out that actually BlackRock has a value of around $4 million per employee vs JP Morgan’s $700 thousand.
(I compared the market cap figure because a) it was easy to get hold of and b) it is a good indicator of what the company is valued at. Yearly profit would obviously be a better figure, but profits are released quarterly and I felt I was biting off way more than I could chew by adding them all up – any help would be appreciated!! My full figures below:
BLACKROCK
Market Cap: $39.91bn and AUM: $3.67 trn
Over 9,800 global employees
Market cap to employees: $4,072,448
JP MORGAN
Market Cap: $ 176.54bn and AUM: $1.4trn
Over 250,000 global employees (Figures from the “Report of the Review Committee of the Board of Directors”)
Market cap to employees: $706,160
Martin Jee's blog 