Strong share market performance has fund managers boosting the ranks of their investment teams, but the competition for staff is fierce and the stakes are rising.
 
"In the hunt for talent, fund managers have gone to market with remuneration packages that include significant long-term incentives in terms of equity participation," Financial Recruitment Group (FRG) senior consultant Peter Dawson says.

As investment team changes continue to dominate media coverage, "the message is loud and clear for funds management companies, either give some skin in the game or your team is at risk", Dawson says.

It is certainly a strategy that was adopted by BT Financial Group. In June, the company announced it would move its investment teams into a boutique-style structure where each team had responsibility for their own profit and loss statements.

"We found that our clients are attracted to the start-up model of a boutique and this is where our staff departures were occurring. By implementing such a model internally, our investment team has the benefits of working in a boutique but also has access to the resources of a larger institution," BT chief investment officer Dirk Morris says.
This was a model Morris was already familiar with from working at global fund manager Putnam.

"Ever since I came to BT I have been playing around with the idea of implementing such a structure. The vision of the Westpac board allowed us to go ahead with the new model," he says.

BT now has four boutiques, which focus on equities, income and fixed interest, a top-down macro strategy and a multi-strategy.

"If the new model works we will look at adding more boutiques in the future," Morris says.

For industry superannuation funds, a key issue for their investment teams is staff retention. Many of them are now moving to a bonus structure on top of offering people base salaries.

In July, the board of Sunsuper approved a bonus scheme for its investment staff.

"It was something that we had to do if we were to both attract and retain quality investment professionals," Sunsuper chief investment officer David Hartley says.

As Sunsuper continues to grow its funds under management, Hartley says the fund will subsequently increase the number of its investment professionals.

For Hartley, hiring more people is a way to save on fees. "If you are paying private equity fees based on a 2 per cent base fee for a $30 million deal, you are up for $600,000 in fees. You might as well hire people for that amount of money," he says.

Hartley dismisses the view that more expensive staff will inevitably lead to higher fees charged by superannuation funds.

He says the growing scale of superannuation funds will allow them to pay competitive salaries without having the subsequent impact on member fees.
His approach indicates that as superannuation funds continue to grow so too will their investment teams.

It is a trend management consultant Terry McGuirk has identified.

Not only has McGuirk noticed the growth in the number of investment professionals employed by these superannuation funds, but consequently a rise in their remuneration packages.

"For larger funds, the level of remuneration for chief investment officers has increased an average 11.5 per cent compared with last year. On the performance reward side, this has jumped from between 17 to 26 per cent. Not only are these funds increasing the rewards for their staff but it is also an issue of using performance-based bonuses to retain them," McGuirk says. Growing your message

McGuirk has also witnessed growth in marketing and business development teams employed by superannuation funds.

"The choice fund legislation has created a competitive marketplace. As funds begin to recognise the significance of branding, they will begin to act more like retail funds," he says.

Industry superannuation fund Hostplus' executive manager of strategy and marketing, Umberto Mecchi, says pre-choice marketing strategies were directed at members.

In the new environment, however, Mecchi says the focus has shifted to selling the fund's messages.

Mecchi, who has been with Hostplus for three years, came from a retail background, having worked at National Mutual, Zurich and an advertising agency.

He says industry funds can start afresh when looking at their market strategy.

"The Hostplus board is very forward thinking. They have embraced and understood new approaches to market," he says.
The fund has five people in the marketing team and Mecchi is hoping to increase the numbers, and is particularly looking for marketing graduates.

The real difficulty in attracting marketing staff to Hostplus is that superannuation as a brand is competing with more glamorous brands, he says.

"Marketing graduates tend to be more interested in major brands like Coca Cola or iPods. It will be a long way to go before we can label superannuation sexy," Mecchi says.

Dawson also notes an increase in marketing opportunities in the funds management sector.

"Demand for marketing communications specialists remains strong as teams have taken on additional resources through 2006 in line with the launch of a stream of major project initiatives," he says. Selling your story

Dawson says finding institutional business development managers (BDM) is a difficult task for fund managers.

"We are finding it increasingly difficult to source institutional business development managers. Now some institutions are looking at bringing retail business development managers over to the institutional space," he says.

Another approach is hiring client service people internally and training them for the role.

Such institutional BDMs transitioning into a role with no direct experience can command a base salary of $150,000, according to FRG.

For institutional BDMs with experience, there are huge financial rewards.

FRG has found BDMs with five years-plus experience working for a tier one fund manager and with runs on the board are looking at base remuneration of $200,000 to $240,000. Those in these roles with 10 years or more would take home up to $300,000.

"These BDMs are either 'guns' and/or are a titled country head and have been given responsibility to represent an offshore manager and to build a bridge into Australia," Dawson says. 

In terms of bonuses, he says long-term incentives are usually the preserve of the heads of sales, heads of institutional business and country heads. Long-term incentives over a three-year rolling period can range between 30 per cent and 50 per cent of base remuneration per year.

On a short-term incentive basis, Dawson says it is not uncommon for BDMs to negotiate a share of revenue bonus, which may range from 5 per cent to 20 per cent of revenue. When good times go bad

As long as markets continue to perform, a good time can be had by all. While superannuation funds now have to compete with fund managers for staff, there is one competitive advantage they offer - security.

According to Dawson, there is recognition among investment professionals that the market will not in the medium to long term sustain the current momentum and are cognizant that their short and long term incentives will over time temper in line with decreasing investment returns.

"A number of senior investment professionals made the comment that going forward they will consider moving from direct portfolio management transitioning to a multi manager environment including major superannuation funds due to more subdued markets and that attractive of moving to a role that will take them out of the day to day markets," Dawson says.

McGuirk also agrees that job security is important for many people.

"Job security is an attractive option for many people. Whether the market is operating in a bull or bear market, superannuation funds will always utilise their staff. When the markets reach a downturn there will always be a role for the professional in a superannuation fund," McGuirk says.