Fall 2020 Business Update: Pandemic expands the gap between industry winners and losers

Pandemic expands the gap between industry winners and losers, and accelerates digital and agile business processes adoption. Executive leadership demand stable.

The pandemic has accelerated leadership and business processes changes and compressed a decade of iterative development into a few months. We predict that many of these changes will become permanent, and managers need to adapt and rise to the challenge.

Managers must adopt a broader suite of skills, applied more nimbly to leadership and problem solving, given the challenges of flexible, remote work environments (see our blog “Leadership Transitions: Accelerating the Pace of Change“). Finding new technology solutions is essential to staying in business, and we expect that many firms will adapt most of these tools and processes permanently, facilitating greater productivity among professional staff and allowing firms to source better talent more quickly and at a more reasonable price as a result of fewer relocation requirements and reduced commuting commitments.

In an interesting side note, the potential real estate efficiencies of smaller physical office footprints have historically been offset by the costs of flexible temporary office space, offsites, think tank/team building, and training and development events. We expect that to continue to be the case as firms adapt in 2021 to a flexible combination of remote, in office, and event-related work environments. Finding the balance of support benefits and flexibility, with metrics-based productivity, accountability, and personal accessibility will continue to take iterative and creative experimentation to be successful.

Niche Investment Solutions Continue to Drive Flows
Asset owners have been active in the first half of the year, allocating funds to specialty managers who have proven the ability to generate persistent alpha. However, niche solutions and asset classes continue to be difficult to scale. As a result, for the first time in over a decade, these niche-driven firms have an advantage over the very largest asset gathering firms in profitable AUM growth.

Our recruiting partnerships reflect this shift, as our clients are increasingly smaller and more nimble firms defined by unique cultures and specific market-related skills. Their growth prospects are strong.

Incentive Compensation Weakening
We continue to predict a weakening of incentive compensation expectations for 2020. The market recovery this year was in a very narrow segment of aggressive growth stocks, leaving most strategies still in negative territory for the year. This is depressing earnings at even the stronger firms in the industry. We are projecting a softening of hiring in Q4 for the same reasons, and as an effort to preserve existing bonus potential. For additional background, see our Q2 blog “Dawn of a New Era: Compensation Expectations to Be Dramatically Reset” and Morgan Stanley / Oliver Wyman’s recent industry commentary “Beyond the Bounce Back.”

Diversity
Half of our successful candidates represent diverse cohorts since the founding of our firm, and this is a result of our relentless work to integrate a broader pool of highly qualified candidates in every search, as well as our endeavors to assist hiring managers to avoid the pitfalls of subconscious biases. These efforts are being recognized and put to work more aggressively by our clients. It is no longer sufficient simply to present a diverse slate… results matter!

The critical ingredient to our success in diversity recruiting has been our 15+ year efforts to move outside our comfort zone in building productive networks in the industry with diverse cohorts that were not considered mainstream by “C suite” managers.

Conclusion
We want to wish everyone well as we all endure the trials of the pandemic and recession. With 100s of millions around the world forced to work in harm’s way, or unable to find employment, our work in financial services, encouraging investment in business and supporting retirement savings, keeps us busy with a very worthy cause, and we should feel very fortunate.

We look forward to staying in touch and being helpful with recruiting or market intelligence matters. Please call or e-mail George or Beverly with any questions

Fall 2020 Business Update: Pandemic expands the gap between industry winners and losers

Pandemic expands the gap between industry winners and losers, and accelerates digital and agile business processes adoption. Executive leadership demand stable.

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