Fund managers face talent crunch

Fund managers have struggled to recruit and retain appropriate talent to match the increasing demand for and sophistication in the use of complex financial instruments, said a research by KPMG International.

The research found that while use of complex financial instruments is rising (57 per cent of traditional fund management firms surveyed said they use derivatives in their portfolios), 50 per cent of fund manager respondents admitted to having no in-house specialist with relevant experience of the complex financial instruments in which they have invested.

Tom Brown, European Head of Investment Management in the UK, said: "Staff skill sets have struggled to keep up with the growing sophistication of the industry. These firms cannot afford to continue 'flying blind'. Migrating experienced people from the investment banks to investment management firms could be one way of addressing this issue."

Institutional investors revealed they are at greater risk still with around one in three investing in these instruments saying they have no in-house experience of them. More generally, the research found the fund management industry now faces the significant challenge of adapting to a radically new business environment post the credit crisis and must focus on risk management processes and governance structures, in addition to the skills gap.

Phil Knowles, Head of Financial Services at KPMG in the UAE, said: "So far banks have largely borne the brunt of the impact of the credit crunch but this new research shows the fund management industry has been affected too, not just in terms of performance but also in terms of trust. The industry faces a challenge to build up the bottom line and respond in real and practical ways to the issues the credit crunch has raised. Key initiatives for industry players going forward should include enhancing client communications and improving the customer centric focus of products."

However, fund management firms are not sitting still and the survey indicated many are already responding to the new environment with a shake-up of internal processes and controls. Four out of 10 respondents said they had already formalised their risk frameworks in the past two years and a similar number of respondents said they planned to do so in the next two years.

"Investors have had a massive knock in confidence, severely diminishing their appetite for risk. It is not so long ago that investors were badly burned by the tech bubble and the memories are still fresh. The fund management sector will need to take a hard look at how it operates by improving skill sets, tightening risk management and achieving industry best practice in governance and transparency to show it can adapt to a fundamentally changed environment. These findings are particularly relevant to the Gulf as fund management activity here begins to step up," Knowles said.

Key findings of the survey

- Investors don't have the same enthusiasm for complex instruments as fund managers

- Lack of skills and experience is a key concern

- Trust in fund managers has fallen as a result of the credit crisis

- Risk management, valuation methods and governance structures are being shaken up

- Making fund management successful in the future requires a renewed focus on the client proposition