Gender equality is one of the hottest topics of the zeitgeist right now. Data shows it’s needed and wanted, but unfortunately, it will look like lip service for a very long time. So let’s talk about the reality for women in corporate Australia.

I’m passionate about diversity, inclusion and equality in the workplace, and I am encouraged by the surge of the talk by business and stakeholders. Initiatives like the push for ASX200 companies to fill 40% of executive positions with women by 2030 by HESTA are also significant for gender equality. However, it’s not enough. 

We need to address the pipeline of up and coming women, particularly with the view that women’s careers are not linear. We also need to work on how not to lose good talent just because they have children. The majority of mothers or mothers to be that I meet through my work have every intention to reigniting their careers. However, whether they do or not is often the result of their experience with their employer(s). 

For this gender talk to really work in corporate settings, some Boards and leaders need a cultural mindset overhaul. But what’s that going to take? Will we have to get to a place where stakeholders ask questions about diversity and prioritise other companies over the products, services, or employment offered? Unfortunately, money always talks. 

Back to the pipeline. Let’s say we do meet the goal of 40/40 by 2030. The reality is that too many women are likely to be appointed to support roles – not positions where diversity can influence or make those critical decisions.

Take a look at this data produced by Open Director; see where women are more prevalent across the ASX top 200 to men? 

ASX top 200 C-suite roles held by men and women

HR, Company Secretary and Corporate Affairs positions

These roles, without a doubt, are important and have a significant influence on a company. Still, these roles will not lead to a woman running the business (unless maybe if the business is in the human capital space). One can also argue that these types of roles hardly ever lead to Chairman or Board positions in the short term.

So, How Do We Change the Reality for Women in Corporate Australia?

If Boards and C-Suite do not hit their targets, they are penalised. Why is diversity seen as a quota and not a target?

  • Creating awareness around the forms of unconscious bias in the hiring process.
  • Hire on skills, attributes and values, so the talent pool of diversity is broadened.
  • Make sure interviews are structured and the grading of interviews transparent by all involved. Women often have to work harder during interviews, so HR can help here.
  • And how about some medium to long term talent planning? Why not identify diversity within the ranks or externally and have them mentored by C-suite executives to prepare them for that critical role?
  • Put women in roles that give them responsibility and accountability for the success of a P/L and the bottom line of a business unit. CFO roles too!

Leaders, the facts for why diversity in leadership is vital to the success of a business is well researched, and many are working hard to solve this problem. However, for others, is a sluggish approach to improving diversity worth missing out on creative, innovative, productive, high-quality talent that will contribute to the success of your business? …not to mention how customers and other stakeholders will respond to your business over time. 

There are so many good women out there. Don’t miss out. Let’s stop making excuses.

Leaders, HR specialists, do you agree? I’d love to hear your thoughts.

Sharon Mackie Goh

Talent Search Haus’s Investment Banking survey looks at how senior investment bankers are adapting to the changing market and the move towards stakeholder management and talent.

Our survey included various participants at both the CEO, Partner and leadership level.
We sought to learn about the current changes and challenges impacting the industry, and given an opportunity, is there a way to do it differently?
The research covered sizeable global investment banks and international and local boutiques.

Is the current model of global investment banking no longer fit for purpose?

Most investment banks run their operations with a full- service capability – debt, equity and mergers and acquisitions. In Australia, many deals sit in the mid-market and given the infrastructure costs large firms are unable to sustain resources consistently across all market sectors. Australia is small in comparison to other significant financial
markets. The cost metrics often do not work. It will always be challenging for the US firms to hold a top-three spot because of the revenue/productivity per headcount measure. “With the larger corporates, there can be complexity in financing, geographical spread and proactivist considerations. That is when you need the large (investment banking) firms”.

Will there come a time that full-service banks adjust their businesses to play to their niche and focus on where they can add value with clients and win?

The US firms have won the race when it comes to global investment banking. They have an integrated approach to managing their international accounts and have adjusted
their business models post the GFC. The European banks have taken longer to respond to the changed market conditions and adapt to a lower cost base.

Should an investment bank be a trusted advisor, a supplier of product, or both?

There are multiple views on this topic, somewhat dependant on the type of firm – global bulge bracket, international boutique or domestic boutique. Global investment banks budget their senior management to deliver a revenue per head year on year. Individuals responsible (Managing Directors) for fee generation feel pressure from the firm. By its very nature, this impacts on decision making to complete a transaction while also ensuring the bank maximises cross-selling of other products into transactions.
Conflicts arise for a “trusted advisor” who invests resources and time to understand the client’s needs and then provides independent advice.
The international and domestic boutiques argue that there will always be a need for independent advice and some responses from boards of ASX 200 confirmed this. Companies will choose an individual or organisation depending on their situation at the time.

Clients will either choose the organisation because of product and international reach, an individual because of trust and knowledge and of course the success of their prior experience. Regardless of the service provider, the expectation is that everyone will rally to execute fearlessly.
International and domestic boutiques can bring independent advice with some of the international boutiques having full representation here or others, a strategic alliance with a domestic firm.

Survey participants commented that international boutiques with deep industry expertise help local partners have a more in- depth dialogue with potential clients that otherwise might not be possible.
This observation appears to be substantiated by the growth of independent boutiques winning market share in the USA. While the success of some generalist international boutiques is sporadic, those that have succeeded have won so by maintaining a low-cost base. When relationships in global markets deliver to local transactions, the revenue can be substantial.

Talent

Everyone acknowledged that there is a shortage of talent for Managing Directors and Directors. Furthermore, investment banks continue to struggle to retain women at the midpoint of their careers with 7-10 years of experience.

Managing Directors

Investment banks and their clients want Managing Directors who are creative, passionate and motivated. The industry continues to promote people who are often great at delivering transactions, and revenue to a firm; however, are they supported to be great leaders? There is an expectation for the mentoring of Directors and below. A good mentor allows mentees access to boardrooms, observing and learning to deal with the nuances of client meetings. Perhaps a rare time when “hunting in packs” is a good thing.

Sometimes more junior executives find it challenging to invite Managing Directors to a client visit if previous experiences were that the Managing Directors dominated the meeting.

There are only one or two rainmakers amongst the firm’s Managing Directors. Overwhelmingly, quality MD’s who choose to continue to work in the industry establish their boutiques or do something else. They leave their old firms because of the frustration with their inability to influence headcount, allocation of costs, remuneration and often the politics.
Some Managing Directors do stay as long as they possibly can. The industry does not pay as it has in the past.

Directors

Directors with the capacity to move into a Managing Director’s role are few and far between. Investment banking has developed them to be great project managers who, unfortunately, are not given time to develop creativity with a solutions mindset. They are often worked to the bone and as we mentioned before, investment banking expects fearless execution.

All firms have struggled to retain mid-career women as the hours are challenging, and they do not see female role models at the senior ranks. In general, the industry has been poor at mentoring and developing younger talent. Senior executives are too busy to invest time or through their own journey, expect the individual to forge their career in the industry. Also, younger people have less opportunity to learn if firms doing a smaller number of transactions.

Sourcing talent

Most often, Investment Banking sourced people who have performed a similar role with a competitor. As such, the new talent comes from other investment banks or professional services firms, local and offshore.

In the past, some banks were able to differentiate their business by the quality of the brand and remuneration. While brand/platform works for a small number of banks, remuneration has levelled out amongst the global investment banks. When proposing the idea of taking people who left to go to a corporate
strategy/development or CFO role, some were positive. In contrast, others felt
they might have left because they could not succeed or did not want the hours
or culture of Investment Banking.

Challenges for the industry on talent

“We have had to change our business model to meet the demands of our customers and staff.
I do not think the investment banking industry has changed its model at all”,
commented a non-executive director from a major corporate.
The industry is less attractive to young people. Arguably, money is not so important to them and the hours are long. Instead, they look for an opportunity to learn, find purpose/values and what their impact will have on the community.

The industry remains quite hierarchical, and when asking about the long hours, participants consistently referred to work having to be redone as it was not aligned to the MD’s thinking. While time appears to be a deterrent to having the project/deal team gain clarity on specific work to do, could communication and shifting mindset improve productivity, so the team require fewer hours?

Every firm recognises the need for diversity. While some investment banks have better policies around flexibility and inclusion, it is essential to see how leaders show up and commit to developing and supporting women. Other important issues to attract women are mentoring, individual career planning, attempting to deal with unconscious bias and much more. No one size fits all, but it is a journey that requires ongoing commitment and time. Women will go to organisations that can demonstrate this through a leaders’ behaviour

Investment banks look for skills and experience within a finite channel. “If we hire at a certain level, they will have the expertise to perform at a certain level

Will there be room for the two new domestic investment banks if they are different?

Since this survey started, we have seen several bankers from the bulge brackets, UBS, Goldman, and JP Morgan leave to join these new firms.

As a headhunter working with the global investment banks for many years, I have not seen a great deal of change to the global investment banking model or how they attract and ideally retain talent.

While the quality of the investment bank platform and brand helps attract talent and money will work for some, other groups have different expectations from their employer. Skills and experience are always important, but I believe we have to start to look for attributes, motivation, values and competencies outside of the competition. If we get that right, it will give the industry access to a broader pool of talent with different thinking.

Other industries appear to connect better with stakeholders and the new world of work. So many bankers have gone on to become successful NED’s, C-suite executives of major corporation and investment firms. Could a review of existing investment banking processes and changes to recruiting, recapture the talent that it has so successfully grown?.

Sharon Mackie Goh

Research shows organisations strong on diversity perform better, are more innovative and will attract and retain better talent. These benefits, however, don’t just come from writing a diversity policy, they require organisations to embed diversity in their company.

While it is a journey, it starts from the most senior leadership ranks, specifically their board and in their C Suite. Diversity from the top establishes the agenda for greater knowledge and connectivity with all stakeholders.

There is no one size fits all approach to developing a culturally/gender/age/ably diverse company but a commitment from the top levels is the best place to start.

It’s a well-known fact that a shortlist of candidates with someone known to the Chair or Board are more likely to be hired. Secondly, the search brief for a NED often demands a particular set of skills and experience. With the availability of only a small pool of women with C-Suite or commercial experience, and given the historical dominance of white males on boards and C suite positions, it restricts the search to a pool of talent already low in both gender and cultural diversity. 

It also explains the very high levels of connectivity between corporate Australia.

Donald Heyller from Open Director says “inviting10 directors to lunch could cover 62% of ASX top 200 companies when counting the boards they are on and their joint directors who sit on other company boards”.

It comes as no surprise that the annual CEW research on gender diversity within the top ASX 200 listed corporations CEW ASX200 SENIOR EXECUTIVE CENSUS 2020 that the number of women on boards is not moving in the right direction.

When it comes to cultural diversity, 42% of our population in Australia is non-Anglo Saxon, yet 75.9 per cent hold C Suite roles.

If Board and their organisations are really committed to creating a culture of diversity they need to allow head hunters to do what they do best – coming up with lateral ideas for candidates based on their in-depth research, understanding of roles and trends, their ability to identify talent and their broad exposure to a diverse talent pool.

While experience and track record are important considerations, we also need to encourage a brief that looks to other qualities such as attributes, complementary skills, aptitude, and motivation regardless of their gender, ethnicity or age. And why not look at recruiting a little differently? If nothing else, COVID-19 has taught us that we can run meetings remotely. Let’s also start accessing the great Australian talent and others working offshore?

Imagine, the impact it would have on expanding the pool of talent available for Board and C-Suite role.

March 2016

Background on the Australian FICC Market

The FICC market in Australia, as it is globally, continues to function under the challenges of pressure from regulators, internal cost structures and the ongoing impact of changing technology.

With the demise of proprietary trading due to the deliberate introduction of direct restrictions and punitive costs designed to break the business model, there has been a major change to the way banks interact with their FICC customers. No longer can banks use the balance sheet as the facilitator of client business. In many ways they are having to revert back to the broking model that preceded this. This is already impacting on liquidity. It seems that the regulators are well aware of this and the impact that this is having in the current climate let alone when an event type move is on. However they are focused on reducing the amount of risk taken on by banks and happy to ignore some of the potential consequences.

As a result of this global phenomenon in combination with historically low rates albeit having seen the first rate rise by Fed in many years, FICC teams globally are being downsized as banks realign their focus both from a big picture perspective as well as more targeted areas that provide greater growth and returns.

These big picture decisions have resulted in RBS and more recently Barclays withdrawing from the Australian market as well as head count reductions across all the global bulge bracket banks in Australia.

The domestic banks also continue to shed head count as they continue react to pressures to reduce costs as well as increasing productivity. This has seen the CBA cut its markets headcount by 10% late last year and Westpac looking for reductions across its institutional business. The risk is that the other domestics will also head down the same path.

One of the quickest ways to increase productivity is to drive sub institutional clients onto the banks execution platform and this has worked the most successfully in FX which is had a head start on the technology and a product that is well suited to electronic execution.

The domestic banks have also adopted the trend to juniorize its teams. Replacing an MD with an AD may give a fast sugar hit to the bottom line in reducing the cost structure but is a risk that longer term damage could be inflicted on the organization as a result of weakening relationships between the bank and its clients.

On a more positive note, the domestics have been prepared to hire people that can provide them with new skills and experience that may not have been available to them in the past. These opportunistic hires however have to overcome the zero tolerance for an increase in total headcount. As such room has to be made if the hire is going to go ahead.

Current situation in the Australian FICC Market

There appears to be a consensus around concerns over the ongoing cost impost of adhering to the new regulatory environment. This not only has resulted in an increased cost of capital to the FICC business but in terms of ongoing costs associated with compliance issues with the increased and more detailed monitoring of all forms of communication.

As touched on before the costs associated with warehousing large amounts of stock on the banks’ balance sheet has resulted in banks having to manage any inventory that they carry very carefully. As a result they will have to be selective in which product they quote on and which they may act as an agency on. As a result some banks may specialize in particular bonds or names and will also have to develop a deeper knowledge of the market through more sophisticated data mining and analysis of price action and customer activity.

On-boarding customers is also now more time consuming as well as costly  given the increased compliance requirements that are in place to protect customers.

Banks are also concerned about the decline in liquidity and the risks that brings not only to the broader market in the face of an event driven move but also in their ability to trade out of positions.

Domestic banks are also concerned about their ability to compete with their global counterparts when it comes to developing technology. Development and implementation costs are high and domestic banks do not have the economies of scale that the international banks do. This is of vital importance given the push to transact more and more business across the FICC space via portals. It also ties in closely with the push to improve end to end efficiencies.

Coverage Models

Historically banks have tended to adopt a coverage model based on product. In order to achieve this they had to have sales specialists covering a number of clients for each product. This required larger teams and was sustainable in more profitable times. This structure was cleaner cut at the larger banks which had the head count to do this with the lines becoming a little blurred with the medium to smaller banks not having the scale to do this resulting in some cross over between products.

However in recent times, given the drivers of reducing costs and increasing productivity, sales teams have been squeezed from a headcount perspective to be as lean as possible. As a consequence, there has been a natural gravitation towards a more macro focused coverage model where a salesperson is responsible for a range of products on offer to a particular customer. This is further enhanced with the ongoing push to drive customers to utilizing portals and as such allowing a salesperson to expand their coverage capacity as well as by pruning clients to leave only those that are deemed to be profitable across key product areas.

Global banks in Australia also appear to becoming more selective in the customers they cover evaluating which ones provide the greatest returns and focusing on these rather than covering a range of customers who do not pay their way. This has the potential to further tighten a banks coverage and product offering as a result of the increased cost of capital. Banks could be forced into becoming product specialists in certain areas concentrating its price making and sales capabilities to a confined range of bonds for example.

Collins Consulting Group was honoured to have Shadow Treasurer, Joe Hockey, as guest speaker at our Insight Lunch. Joe was joined by six of Australia’s top MD’s and CEO’s from global and domestic Investment Banks and Fund Managers.

Questions and talking points included the regulation of executive pay, the superannuation industry under review and the GFC – is the crisis really over and what are the risks now.

The lunch provided an open forum to share ideas and challenges, and gave guests an opportunity to investigate these topics with someone of Joe’s calibre and political experience.

Joe Hockey is the Federal Member for North Sydney and the Shadow Treasurer. He was elected to the Australian Parliament in 1996 and following his re-election in 1998 was made Minister for Financial Services and Regulation, one of the youngest ministers in the history of the commonwealth. After the 2001 election, Joe was appointed Minister for Small Business and Tourism and in October 2004, Joe was appointed Minister for Human Services. In January 2007, Joe became Federal Minister for Employment and Workplace Relations and Minister assisting the Prime Minister for the Public Service. Following the 2007 Federal Election, Joe was appointed Shadow Minister for Health and Ageing and Manager of Opposition Business in the House of Representatives. In 2008, Joe was appointed Shadow Minister for Finance. In February 2009, he was appointed by Opposition Leader Malcolm Turnbull as Shadow Treasurer.

Guest comments:

“My thanks for a thoroughly enjoyable discussion over lunch. Well chosen guest of honour and a timely information conversation.” — MD Fixed Income, Global Investment Bank

“Many thanks for the invitation to attend the lunch with Joe Hockey. It really enforced how tough it must be in opposition, with no resources and the opinion polls in the wrong place. I would welcome him as a future Treasurer given his views on free markets.” — MD & Head Investment Banking, Global Investment Bank

For further information on our upcoming Insight Lunch events, please contact:

Sharon Mackie

Partner – TALENT SEARCH HAUS

Direct:  +61 29235 9806
Email:  sharon@talentsearchhaus.com

Collins Consulting Group’s Insight Lunch was an opportunity for special guest David Gonski, to join other prominent executives from renowned Australian and global businesses to share their thoughts and ideas on the chosen topic of “scrutinising the revolution in the financial services industry”. Discussion points included:

The Johnson Report: Should Australia become a regional centre? Should the ASX alter its role through new licensing arrangements and trading platforms?

Executive remuneration: Is executive remuneration really the problem it is perceived to be? What effect might the Productivity Commission’s recommendations have on the executive labour market in Australia?

Institutional investors: What is the role of institutional investors in establishing corporate accountability? Have Australia’s institutional investors been too cautious in using their powers to hold companies accountable?

The role of Boards: How should organisations and boards ensure that directors really have the skills, capacity and will to ensure rigout in decision-making?

Corporate social responsibility: What does corporate social responsibility mean to you? Has this changed since the Global Financial Crisis?

Guests were able to investigate their ideas and challenges with someone of the calibre and experience that David brings.

David is now the Chairman of ANZ.  Prior to this he became the Chairman of Investec Bank (Australia) after Investec acquired his corporate advisory firm Wentworth Associates. David established Wentworth Associates after leaving his role as Partner of Freehills. In addition to being the Chairman for ASX Ltd, Coca-Cola Amatil, National EHealth Transition Authority, UNSW Foundation, Sydney Grammar School and the Sydney Theatre Company, David is also a Director of Westfield Group and Singapore Airlines, and a Chancellor of the UNSW. Previously David was a member of the Takeovers Panel, President of NSW Art Gallery, Director of ANZ Bank and Chairman of the Australia Council for the Arts.

Guest comment:

“Many thanks for an enjoyable lunch. Appreciated the views and advice from an impressive and interesting group of guests.” — CEO, Global Investment Bank

For further information on our upcoming Insight Lunch events, please contact:

Sharon Mackie

Partner – TALENT SEARCH HAUS

Direct:  +61 29235 9806
Email:  sharon@talentsearchhaus.com

Collins Consulting engaged a external consultant to conduct qualitative research into talent retention in the Australian finance industry in the wake of the current global financial crisis. 23 indepth interviews were conducted in December 2008 and January 2009 with leaders and top talent in the finance industry.

To assess the state of the Australian equity markets, Collins Consulting Group engaged independent research specialists. The research focused on prospects for new entrants and assessed hiring strategies. 22 in-depth interviews were conducted in June 2010 with senior decision makers from investment banks, fund managers and broking firms. From this, we have developed a better understanding of current market conditions and, combined with our expertise in the sector, can make some recommendations.

Current Market Conditions

The Australian equity markets may superficially appear to be ripe for new entrants. Australia is a relatively strongly developed economy and it has a large government-mandated pension pool. However, it is very crowded and competition is fierce. Many attempts have been made to break into the market with varying degrees of success. Fund managers interviewed universally regarded the prospects for new entrants as extremely limited. They commented that it would be very tough to break in without a significant point of difference, and they felt that in such a saturated market any content or service gaps are quickly closed. Fund managers commented that the level of investment required, both in time and resources, would need to be significant and sustained over at least a five year period to establish trust and win market share.

Fund managers are well aware of their power in the market and are using it. They are driving new deal structures, such as tripartite deals between fund managers, boutique research providers and large corporate broking houses. This is making an already difficult market even tougher for lower ranked players. Other points of interest are:

Panel appointments are not the only means of establishing broker/fund manager relationships, and their prevalence may be diminishing.

Some aspects of the broking function are increasingly becoming commoditised and some fund managers look to the day when they can avoid dealing through brokers altogether.

Fund managers are driving new deal structures that have limited upside for brokers.

Recommendations

Prospective entrants to the Australian market must give careful consideration to the competitive landscape and make a realistic appraisal of likely levels of investment required for their entry strategy.

Poorly planned and executed entry strategies are difficult to recover from. Some recent entries to the market have been perceived as naïve and ill considered. These have done considerable, possibly irreparable, brand damage locally.

What might contribute to a successful entry?Unfortunately, very few fund managers made any positive comments about entries to the market that they have observed. However, from analysing their criticisms, some positive recommendations can be made.

Strategy, Investment and Pace

Many fund managers stressed the need to make a clear choice between a full service or a niche offering. It was felt that some recent entrants, while purporting to have a specialty focus, were in fact engaged in a half-hearted attempt to establish a full service house. There was also a negative perception of some past attempts to break into the market, with some organisations described as fickle – having a history of attempting market entry in growth cycles and withdrawing in downturns. While there is clearly some business logic to this, it has been hugely detrimental to the trust and engagement of the fund managers. Incremental development efforts, demonstrating a long-term commitment to local investment and establishment of a quality offering received more positive comment than alternative approaches.

Recommendations

Recent entries to the market have been underwhelming and there is a high degree of scepticism about the prospects for their success.

New entrants must have a clear strategy and/or point of difference to enter successfully. In particular, a clear choice between “full service” and “niche” style offerings need to be made, with associated levels of investment.

A niche strategy would have to be extensively and clearly communicated to the market and backed up with a clear ability to deliver quality results.

New entrants may need to be prepared to invest significantly for several years before realising any return, and to ride out market turbulence without withdrawing.

The People Factor

The hiring strategies of many recent new entrants – involving large-scale hiring drives with huge sign-on packages – were roundly criticised and seen as unlikely to assist in establishing a long-term presence.

Fund managers commented that some new entrants have ‘picked up one star’ at an exorbitant price and then surrounded that person with second-rate hires. A single “big name” was generally thought not sufficient to draw fund managers’ business across to a new player. When fund managers considered the relative importance of talented individuals, the whole was generally considered to be greater than the sum of the parts – that is, a cohesive team with reasonable levels of talent across the board was a better prospect than a team with one outstanding individual and not much else.

Slow, considered approaches to hiring were generally considered much more promising than “big splashes”. This was in part because the working pool of genuine talent was perceived to be very small; and therefore, the proportion of it that might be available at any given time was extremely limited. Large hiring drives were generally perceived to result in the stacking of desks with second- or third-rate talent.

In analysing changes to perceived rankings of established players, the importance of a cohesive, high quality team became apparent. Fund managers felt that drops in performance on all attributes of the broker/fund manager relationship often correlated closely with periods of upheaval, particularly in the research teams, and the ability to maintain relatively cohesive teams was seen as a key strength of top players such as UBS and GSJBW.

Recommendations

A functional, cohesive, quality team is more important to the fund managers than one or two stand out individuals (although having those people obviously helps). One strategy might therefore be to purchase an existing business that includes an established, well-respected and cohesive research team. A new entrant can then focus on gaining leverage from that team by backing their offering with a global structure and its associated benefits.

Quality research is the primary attribute fund managers consider important. Other significant attributes include corporate flows and execution, contacts and corporate access. No one attribute is definitive and the ideal mix varies according to the fund managers’ business model. That said, several business structures among successful boutiques involve essentially outsourcing all but the analysis.

Local weaknesses and skills gaps include capacity for cross-silo research and analysis (eg across asset classes or sectors), creativity, insight, and depth of research, as well as a willingness to provide services directly tailored to the fund managers’ needs and business models.

To obtain a full copy of this research paper, or to discuss the findings in more detail, please contact:

Sharon Mackie

Partner – TALENT SEARCH HAUS

Direct:  +61 29235 9806
Email:  sharon@talentsearchhaus.com

We’re well into the credit crisis, and yet, a multitude of questions remain largely unanswered.

For instance, what real impact has the credit crisis had on global investment banks in Australia? Will the banks be forced to reduce headcount? Will there be growth in numbers due to regional commitment by some U.S and European firms? What is likely to happen to salaries for year-end 2008?

Of course, there is also one important question on the lips of anyone working in banking or financial services: What will happen to my bonus?

Looking for answers to these questions, we performed a recent survey of several executives from the majority of Australia’s 12 global investment banks.

The survey included representatives from key divisions of the banks – including equities, global markets, financial markets and fixed income. In essence, participants were asked for their opinions on how their parent company (or head office) would be managing remuneration and bonus allocations for the coming financial year. Although discussions with offshore counterparts would be taking place late September, the following observations were made:

The survey revealed four predictions:

1.  There will be staff cuts. As the parents of the Australian subsidiaries continue to report global losses of billions of dollars, offshore banking operations have been forced to cut staff in areas where there is limited activity. This is due to a variety of factors – such as capital constraint, a subdued risk appetite for particular products, and lack of investor confidence. Locally, while the mood is subdued, there is a sense that some of the banks may look to cut staff numbers over the next few months, in areas such as back office, client services and sales. This could lead to possible head count replacement in the first quarter of FY09 – though this will be very cautiously exercised.

2. Banks will develop better retention strategies. As the banks become better managers of their human capital, senior management will undoubtedly look at ways in which they can more effectively retain their key talent.

3. There will be a re-allocation of the bonus pool. 
New retention strategies will translate into the majority of the bonus pool being allocated to high performing talent, whilst other employees could receive significantly lower bonuses or even none at all.

4. Reduced bonuses. 
The overall outlook is that the bonus pool will be down between 20-50% on last year as the parent companies strive to preserve capital. There is likely to be little movement on fixed costs, but (STI) bonuses will be down, and a greater proportion of equity/stock will be allocated to individuals.

Ironically, these predictions have been made against a backdrop of apparent local stability.

On the Australian front, many of the investment banks are performing better this year than their offshore counterparts, and some of the better-positioned banks are reporting increased revenues for the year, particularly in cash equities foreign exchange, financing and derivatives.

For further information, please contact:

Sharon Mackie

Partner – TALENT SEARCH HAUS

Direct:  +61 29235 9806
Email:  sharon@talentsearchhaus.com

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To assess the state of the Australian equity markets, Collins Consulting Group engaged independent research specialists, Kitsune Consulting. The research focused on prospects for new entrants and assessed hiring strategies. 22 in-depth interviews were conducted in June 2010 with senior decision makers from investment banks, fund managers and broking firms. From this, we have developed a better understanding of current market conditions and, combined with our expertise in the sector, can make some recommendations.

Current Market Conditions

The Australian equity markets may superficially appear to be ripe for new entrants. Australia is a relatively strongly developed economy and it has a large government-mandated pension pool. However, it is very crowded and competition is fierce. Many attempts have been made to break into the market with varying degrees of success. Fund managers interviewed universally regarded the prospects for new entrants as extremely limited. They commented that it would be very tough to break in without a significant point of difference, and they felt that in such a saturated market any content or service gaps are quickly closed. Fund managers commented that the level of investment required, both in time and resources, would need to be significant and sustained over at least a five year period to establish trust and win market share.

Fund managers are well aware of their power in the market and are using it. They are driving new deal structures, such as tripartite deals between fund managers, boutique research providers and large corporate broking houses. This is making an already difficult market even tougher for lower ranked players. Other points of interest are:

Panel appointments are not the only means of establishing broker/fund manager relationships, and their prevalence may be diminishing.

Some aspects of the broking function are increasingly becoming commoditised and some fund managers look to the day when they can avoid dealing through brokers altogether.

Fund managers are driving new deal structures that have limited upside for brokers.

Recommendations

Prospective entrants to the Australian market must give careful consideration to the competitive landscape and make a realistic appraisal of likely levels of investment required for their entry strategy.

Poorly planned and executed entry strategies are difficult to recover from. Some recent entries to the market have been perceived as naïve and ill considered. These have done considerable, possibly irreparable, brand damage locally.

What might contribute to a successful entry?

Unfortunately, very few fund managers made any positive comments about entries to the market that they have observed. However, from analysing their criticisms, some positive recommendations can be made.

Strategy, Investment and Pace

Many fund managers stressed the need to make a clear choice between a full service or a niche offering. It was felt that some recent entrants, while purporting to have a specialty focus, were in fact engaged in a half-hearted attempt to establish a full service house. There was also a negative perception of some past attempts to break into the market, with some organisations described as fickle – having a history of attempting market entry in growth cycles and withdrawing in downturns. While there is clearly some business logic to this, it has been hugely detrimental to the trust and engagement of the fund managers. Incremental development efforts, demonstrating a long-term commitment to local investment and establishment of a quality offering received more positive comment than alternative approaches.

Recommendations

Recent entries to the market have been underwhelming and there is a high degree of scepticism about the prospects for their success.

New entrants must have a clear strategy and/or point of difference to enter successfully. In particular, a clear choice between “full service” and “niche” style offerings need to be made, with associated levels of investment.

A niche strategy would have to be extensively and clearly communicated to the market and backed up with a clear ability to deliver quality results.

New entrants may need to be prepared to invest significantly for several years before realising any return, and to ride out market turbulence without withdrawing.

The People Factor

The hiring strategies of many recent new entrants – involving large-scale hiring drives with huge sign-on packages – were roundly criticised and seen as unlikely to assist in establishing a long-term presence.

Fund managers commented that some new entrants have ‘picked up one star’ at an exorbitant price and then surrounded that person with second-rate hires. A single “big name” was generally thought not sufficient to draw fund managers’ business across to a new player. When fund managers considered the relative importance of talented individuals, the whole was generally considered to be greater than the sum of the parts – that is, a cohesive team with reasonable levels of talent across the board was a better prospect than a team with one outstanding individual and not much else.

Slow, considered approaches to hiring were generally considered much more promising than “big splashes”. This was in part because the working pool of genuine talent was perceived to be very small; and therefore, the proportion of it that might be available at any given time was extremely limited. Large hiring drives were generally perceived to result in the stacking of desks with second- or third-rate talent.

In analysing changes to perceived rankings of established players, the importance of a cohesive, high quality team became apparent. Fund managers felt that drops in performance on all attributes of the broker/fund manager relationship often correlated closely with periods of upheaval, particularly in the research teams, and the ability to maintain relatively cohesive teams was seen as a key strength of top players such as UBS and GSJBW.

Recommendations

A functional, cohesive, quality team is more important to the fund managers than one or two stand out individuals (although having those people obviously helps). One strategy might therefore be to purchase an existing business that includes an established, well-respected and cohesive research team. A new entrant can then focus on gaining leverage from that team by backing their offering with a global structure and its associated benefits.

Quality research is the primary attribute fund managers consider important. Other significant attributes include corporate flows and execution, contacts and corporate access. No one attribute is definitive and the ideal mix varies according to the fund managers’ business model. That said, several business structures among successful boutiques involve essentially outsourcing all but the analysis.

Local weaknesses and skills gaps include capacity for cross-silo research and analysis (eg across asset classes or sectors), creativity, insight, and depth of research, as well as a willingness to provide services directly tailored to the fund managers’ needs and business models.

To obtain a full copy of this research paper, or to discuss the findings in more detail, please contact:

Sharon Mackie

Partner – TALENT SEARCH HAUS

Direct:  +61 29235 9806
Email:  sharon@talentsearchhaus.com