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March 22, 2009 10:56 pm
US money managers are preparing another round of job losses, and are seeking to cut costs even further as investor redemptions show no signs of slowing.
Capital Group, the parent of one of the largest managers, American Funds, has told employees in an internal memo that it will eliminate more jobs, its third round of cuts in the past six months. The latest move is part of a cost-cutting plan that includes a freeze on pay rises, Capital said. It has already cut close to 600 people, or 6 per cent of its staff. Prior to the current crisis, the group had only cut jobs once in its 78-year history.
The memo said: “Given the continuing business decline, deeper cost-cutting measures will need to be pursued. Unfortunately, these will include the elimination of jobs across many groups.”
Almost all fund companies have cut jobs in the past six months, and they are taking the unusual step of cutting fund managers as well as back office and support staff. Money managers have typically had a drop in assets under management of more than a third during the downturn, as a result of both heavy investor redemptions and performance losses.
Fidelity late last year said it would cut 7 per cent of staff, or more than 3,000 people. Franklin Templeton, MFS, BlackRock, AllianceBernstein, State Street, Legg Mason, Janus and Putnam are among others that have reduced staff numbers.
Even Pimco, one of few firms to have had an increase in assets under management, has cut jobs in London and Munich.
The pressure on smaller companies is greater, as they lack the scale to absorb large cash outflows. Boston Company Asset Management lost 89 staff, almost a third of its employees, after its assets under management fell by half. The group, which manages the Dreyfus funds, is part of BNY Mellon.
Pay freezes have become another common tactic to combat shrinking revenues. Of the 25 largest fund companies, only nine have attracted net new money to their stock and bond funds in the 12 months to February, Morningstar said.
Hedge funds, which were a huge source of job growth in the financial sector during the past six years, have contracted sharply. Close to 1,500 hedge funds, a record 15 per cent of the total, closed last year, according to Hedge Fund Research, and liquidations have continued.
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