When I joined my ex-employer all these years ago, in 1995 or was it 1996 (there is a joke here), the world of finance was very different. At the time, the City was well on its deregulatory wagon, the change that had occurred almost 10 years earlier and the massive inflow of capital that it created was something to behold. I remember a friend who worked in a mutual fund shop telling me that his strategy was getting between 2 and 5 million pounds of additional capital every day.
When I joined my ex-employer, about half of our client's assets were in bonds. Bonds have always been the sleepy bit of the financial industry, and whenever it gets exciting (aka the junk bond craze) it never ever ends well.
As a strategist my conservative brain said 40 to 50% of an investor's portfolio should be in fixed-income instruments. Guess what when the reality of working in the financial sector hit that question went out of the window. Of course, we told our client that at least a third of their assets "should" be in fixed-income instruments, but for the vast majority it was more like 10% or less, and in most cases that 10% was mostly in "utility like" equities such as British Gas.
For the past few years, the world has been changing and the change at first gradual has accelerated. first, your client base was on average 50 in 1995 the year I joined. Again it is rarely 20 years old that seek the help of a shop like my old employer. In the late 90s, it fell to 45 as the dot-com wave of millionaires were looking to park their assets with pros. Since then it has been falling, I was told by a friend there that the average now is just over 67. That means that half of our clients are retired. Estate planning is more important and the shifting demands of the tax man, and their reduced income (as opposed to capital gains) as they shift out of the labour market has a big impact.
20 years ago, the number one client gift was tickets to the World Cup, again I was told that last year it was Royal Ascot.
More importantly, 20 years ago 80% of our asset base growth was driven by client allocation. We were doing well so we got more of their money, Now, 80% of the firm/s growth is from new clients. We are also seeing more and more generational shifts in our client base. In short, our old clients are dying and their children are assuming control over the asset. While a good percentage left their money where it was, many took it out to "better managers". cryptos were mentioned a lot in these conversations.
What it means is a shift in things. Technology already deeply impacted the asset management business. Running a few hundred million used to take a large team of people. Not anymore. The back and middle office in my old firm saw massive attrition like over 90% of the staff is gone. Replaced by computers. Even compliance has shrunk, and it's not over yet. the CEO of my old firm is a friend, he told me that within five years staffing that peaked at nearly 1,000 in 2002 will be down to less than 200 by the end of 2024. All those who remain are client-facing individuals. He believes that within 5 years the number will shrink by more than half. This is the kicker, the firm currently manages more money than it ever did. I quit the firm in 2018. At the end of March 2024, my old firm managed twice what it did when I was there.
Now my old firm consistently outperformed the market (luck, good timing talent). Overheads have dropped nearly 80%, and management fees have been halved over the last decade. But my old firm was one of the most successful ones always top of the ranking. Imagine was is going on in the firms that have not outperformed. the bloodbath has been catastrophic, and these jobs are never coming back.
At its peak, the City accounted for 7% of British GDP, unnaturally high. Today it is less than 5% and it's on its way down, not because of Brexit (well not only because of that) but also because those who were the wealth creators for the past 25 years are largely retired. They are taking all their savings away from the risky side of the market and are going directly to the bond market. Not exciting but liquid and income-generating. Things they want.
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