Annual pay cheques of some fund managers in India have hit $1 million, levels seen normally in London and Tokyo, as asset management firms scramble for scarce talent in a booming market.
More than a dozen firms are now waiting to join the country’s 33-member industry, exacerbating the talent crunch.
Analysts say rampant poaching and soaring pay have delayed the launch of new operations, may hurt industry-wide profit margins and put the future of smaller firms in jeopardy.
India’s $138 billion fund industry has seen assets surge 63 percent in the past year, attracting many global asset management firms, which have enticed star portfolio managers from rivals to kickstart their operations.
At least 14 funds, including those from Japan’s Shinsei Bank, UBS AG and Indian brokerages Edelweiss Capital Ltd and Indiabulls Financial Services Ltd, are in the queue to join the industry.
The scramble has boosted the pay of chief equity managers by up to 300 percent to $500,000-$600,000 a year, comparable to those in Singapore and Hong Kong, said Ajay Bagga, chief executive of Lotus Mutual Fund.
“The day is not far when some fund managers will be having Japanese or London kind of salaries of $1 million plus,” Bagga, whose firm managed assets worth about $2.5 billion, said.
Already, some managers in India command as much as $1 million, he said, and those ranks would swell in the coming years as competition hots up.
The soaring salaries, which have at times led to pay cheques tripling in one job move, are putting huge pressure on funds’ profits, as they can only charge about 1.25 percent of the assets under management as fees.
Alpesh Shah, partner and director at Boston Consulting Group, said a firm would need at least $2.5 billion under management to break even, twice as much as was needed two or three years ago.
Fifteen, or nearly a half of all fund firms in India, have assets of less than $2.5 billion, and analysts say small players would be under pressure to stay afloat.
“Sustaining so many players is a little doubtful at this point in time,” said Sanjay Santhanam, director at Canara Robeco Asset Management, which manages about $718 million and is looking to hire a head of equities.
Consultancy firm Mercer said in report in October that salaries of executives in asset management firms rose 29 percent from a year earlier, pushing the average cost of head of equities to about $250,000 a year.
Competition from private equity, offshore funds and insurance firms and industry expansion are adding to the talent shortage.
The shortage of skilled people is delaying the entry of new players, said Saurabh Nanavati, chief executive of Religare AEGON AMC, which plans to launch operations later this year.
Lotus Mutual’s Bagga had to delay the launch of his first fund by three months after losing his heads of equities and debt funds.
Bharti AXA, which plans to enter the field, hired its heads of equities and fixed income investments from ABN AMRO and DSP Merrill Lynch respectively, while its chief executive Sandeep Dasgupta came from Deutsche Mutual Fund.
South Korea’s largest fund firm, Mirae Asset, launched its first fund in India last week. It hired its head of equities and chief of fixed income from India’s SBI and Tata mutual funds respectively.
The Indian arm of Morgan Stanley, which last week launched a fund in India after a gap of 14 years, took its fund managers Jayesh Gandhi and Navneet Munot from Birla Sun Life Asset Management in December.
“The attrition rate has certainly gone up sharply in the last two years. With the supply on the shorter side, we have seen the age and the experience criteria for the fund managers also coming down,” Suraj Saraf, senior analyst at fund tracker ICRA, said.
At end-January, 113 fund managers managed equity assets worth about $47 billion across 325 schemes, ICRA data showed.