It may not be apparent to some asset management firms, but there's a revolution brewing amongst their ranks, and it's been brewing for some time now. With assets and revenues at record levels, it's hard to notice or acknowledge anything like that could be happening. Not everyone is happy with the current situation inside some firms, and it could make things extremely difficult for them in the not-too-distant future.
Some Asset Managers are Neglecting Their Future
Senior management is often content with the status quo: Loyal client base, flagship investment strategies, inbound referrals from satisfied investors and strong performance. They don't want to break what appears to be working.
But for next generation portfolio managers, whether 35 or 55 years old, some are feeling neglected. They "often feel like they are floating down a river without a life jacket," said one disgruntled senior portfolio manager. While they are experienced money managers and keep top executives and the firm's clients happy, they worry that their firms aren't thinking enough about growth.
Why aren't we being considered for relevant RFPs? How can we better target the prospects we want to work with? Will we ever launch this strategy we are testing? Why do we keep losing to this up-and-coming competitor? Why do investors still not know who we are?
What Next Generation Portfolio Managers Want
For firms expecting to hold on to their younger portfolio managers, they face an uphill battle. The next generation of portfolio managers are growing impatient with this mindset. While the current leadership might be content with their recent success, the next generation wants
They sit back and watch business as usual, but they know that most of the new revenues over the last several years is primarily a result of asset appreciation. They want to cause growth rather than merely allow it to happen. They see the potential of what can happen if they take the business to the next level. They want to better compete with the big firms. They want to see the firm move into the 21st century with a full embrace of new technologies and a robust
sales and marketing effort. Their vision of the future includes acquiring other firms, entering new markets, or creating new investment strategies.
When they see their leadership weighed down by complacency, they begin to realize they're not in the right place. They don't see enough growth potential for the firm. There's not enough opportunity to grow professionally, so they leave, looking for more entrepreneurial opportunities with other asset managers or hanging their own shingle.
Some firms are now struggling with debates between senior management and younger
portfolio managers about the firm's goals and how the business should be run. Clearly, senior management is going to win. Because of their success in managing money — which is what got them to where they are — they may not see the urgency of adopting the vision of the next
generation of leaders. Others may be afraid of it.
What Can Asset Managers do to Create Forward-Looking Culture?
Many firms have taken the critical step of investing in the development of future leadership, and it's paying off. Many have developed programs to incorporate the thinking and muscles of the next generation.
Here are some ways boutique firms can start down the path of creating more of a growth
Start the conversation.
Start a conversation between senior management and next generation portfolio managers. All parties need to acknowledge that things will not change overnight. But it's essential to start talking about the issues. Maybe senior management can create a management team structure to include select younger portfolio managers at the table. Giving them a say will boost their confidence and morale.
Raise their visibility.
Allow the firm's up-and-comers to become the faces of the firm more than they are. That could include putting them in front of more clients, speaking at conferences or
webinars, and answering questions from journalists. That would allow them to raise their stature by sharing their thought leadership and insight. It also shows investors that there is more depth to the organization in case the founder gets hit by the proverbial bus.
Include growth strategies in the discussion.
To demonstrate their commitment to move toward a growth culture, firms could add a weekly or monthly meeting to discuss objectives, strategies, and, if implemented, results. And hold your team accountable for what they say they will do. This allows it to take on more visibility and importance throughout the organization.
Tie compensation to growth metrics.
Move beyond traditional compensation models for beating the benchmark. Instead, add metrics such as assets under management, new clients, and effort in leading or participating in the growth strategy that was added.
Spread the firm's equity.
Give them a stake in the business. With equity ownership they will be more engaged and start thinking like an owner. Sophisticated investors will appreciate that the portfolio managers have skin in the game.
It's difficult to change the culture, but it's critical for firms that are still playing catch-up in addressing the new complexities of growing an asset management firm. There will be trials and tribulations along the way but the firms most at risk today are those where leadership is
resistant to change, choosing to maintain their focus on the short term at the expense of long-term sustainability.
Dan Sondhelm is CEO of Sondhelm Partners, a firm that helps asset managers, mutual funds,
ETFs, wealth managers and fintech companies grow through marketing, public relations and sales programs.
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