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Fund manager ranks thinning

IPAC Securities' latest survey of investment managers shows the pool of talent is decreasing, despite a growing amount of funds under management. IPAC's David van Schaardenburg explains the survey and its findings.

Monday, August 3rd 1998, 12:00AM

by Philip Macalister

IPAC’s fund manager and fund research process places heavy emphasis on assessing the people behind investment decision making within funds management companies. This is due to the belief that variations in the quality, experience and continuity of investment personnel is a key factor behind differences in performance over longer term periods between one managed fund versus another.

IPAC tracks the composition of the investment teams across the various funds management service providers, periodically constructing a comprehensive report detailing existing industry personnel statistics. This data then forms part of an industry trend series that was first established in 1995.

The 1998 report, compiled in the second quarter, includes personnel from 22 fund managers and broke down personal information into gender and age, academic qualifications, industry experience, role descriptive, and length of organisation employment. Only those persons involved in day to day investment activities and decisions were incorporated in the survey.

The first item of interest is the decline in the number of personnel included in the latest survey. This year's survey covered 125 people, a sharp decline from last years 161 individuals. The significant decline (22 per cent) is primarily due to several acquisitions and rationalisations which have occurred in the past 12 months, such as Norwich/Sun Alliance, Southpac/AMP, and this has lead to fund manager redundancies. We expect that more merger and acquisition activity in the industry will occur with the resulting prospect of a further thinning of the professional fund manager ranks.

Market share creep by index funds, which have proved popular with pension fund trustees due to low cost, performance certainty (versus asset class benchmark) and tax advantages (though the latter advantage will close for pension fund investors from April 1, 1999) are also perceived to have had an impact on employment levels. Personnel declines have occurred even as total assets under management by the industry have risen by 12 per cent to $38.9bill in the year to March 31.

As in previous surveys, males (94 per cent) dominate the ranks of the industry's decision makers and there is a preponderance of employees in the 25 -40 year old age bands (75 per cent). While industry experience levels are creeping up, the average period with the incumbent employer is in decline going from 5.9 years to 5.3 years between 1997 and 1998 with 64 per cent of investment personnel having been with their current employers for less than five years.

The New Zealand industry averages for factors such as industry experience, time with incumbent manager, participation by females and age is considerably less than in the industry in the United States. This is not surprising given the embryonic nature of the industry in New Zealand.

Future New Zealand investment personnel trends will be influenced by a number of factors, namely;

- Industry merger and acquisition activity

- A trend towards global centralisation of information based activities (such as investment management)

- Impact of index investing (machines replacing people)

- Market penetration by offshore funds management companies

- Evolution of the legislative framework relevant to savings trends (where to, how much)

- Demographic trend influence on overall savings levels.

Irrespective of these trends IPAC’s research focus remains on getting to know the fund managers, their investment analysis and decision making processes and adjudging each against industry best practise not just in New Zealand but internationally.

 

David van Schaardenburg is the general manager of IPAC Securities.

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