Trading & Execution

US asset managers slash costs by up to a fifth

US Investment managers that are taking active measures to reduce expenses are targeting average cost cuts of 22% by the end of 2009 as falling portfolio values shrink revenues, according to a new survey by research and consulting firm Greenwich Associates.

The study, which polled 47 CEOs, chief operating officers and chief financial officers of US asset management firms, found that companies’ portfolio assets declined by an average of 31% during 2008.

As a result of these falls, investment managers projected an average revenue decline of almost 33% from 2007 levels by the end of 2009. The worst-hit firms expect revenues to dip 43%.

Only a handful of the firms surveyed are not planning major expense reductions in the face of falling revenues. Across the industry, asset managers are looking to cut 2009 budgets by around 14% compared with 2008.

Most managers are targeting non-investment departments with the cuts. Around three-quarters of those cutting costs are focusing on support services and/or investment operations. Two-thirds are trimming expenses from client services and/or information technology. More than half the firms are cutting executive management costs. Of these, more than 30% are looking to reduce these expenses by 15% or more, and 17% are looking to reduce them by 30% or more.

Firms are also planning an average 29% reduction in bonus expense from 2007 to 2008, and around half the firms surveyed are reducing headcount. Firms that confirmed headcount cuts have eliminated or plan to eliminate around 11% of their workforce on average.