Who has benefited most from quantitative easing (QE)? You might say bankers and you could argue that being saved from oblivion with reams of printed money is something to be very grateful for.But if we're talking salaries here, investment banking pay has fallen hard (in real terms, at least) since 2006, according to the Financial Times. No, the real winners from QE have been asset managers the people who invest our money on our behalf.
A study out last week by think tank New Financial looked at "average compensation cost per employee". Between 2006 and 2014 the average cost of an investment bank employee fell by 25% to $288,000. Meanwhile, the average cost of asset management staff rose by 22% to $263,000.If that continues, says the FT, asset managers will overtake the investment bankers by this time next year.
How has this happened? It's pretty simple. As William Wright of New Financial puts it: "investment banking staff are taking a shrinking portion of a shrinking pot". Business has declined and banks have been forced to crack down on compensation. Asset managers, on the other hand, "are taking a constant portion of a growing pot". Fund managers get paid a percentage of the money they look after.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
So as the overall pool of money they're looking after expands, they get more of it, even if they don't do any more work. And one thing that QE has done is to force more money into the investment markets partly by repressing interest rates (forcing people to take more risk to make acceptable returns) and partly because the central bank money used to buy government bonds then needs to be reinvested in something by the recipients. So inevitably, assets under management have grown (doubling since 2004) and pay packets have grown right along with them.
This is, to put it bluntly, nuts. If even a third of "the gains in efficiency and scale in the past decade" had been passed on to clients savers like you and me, in other words pay would be 15% lower, notes the FT. But a lack of transparency and a poor grasp of just how much these companies are creaming off our returns has allowed the industry to get away with snaffling the gains for itself.
There are signs that things are getting better. For example, the Swedish government has now launched a formal investigation into 'closet trackers' funds that charge expensive active management fees but deliver "passive", benchmark-hugging performance that could be had more cheaply elsewhere.
In the UK, the banning of kickbacks to financial advisers has put more pressure on fund managers at least to consider value for money, rather than compete on how much commission they can afford to pay. But if they need more motivation than simple good customer service, asset managers should just look at what happened to the bankers and get a grip now before someone else does.
-
-
Pension withdrawals on the rise, HMRC data reveals
Pension withdrawal data has led to some raising concerns over savers ‘raiding’ their pensions unsustainably.
-
ONS: UK economy recovered from pandemic faster than previously thought
Revisions from the ONS showed the UK economy has grown since the pandemic, while the latest data showed GDP grew in the second quarter of 2023.
-
Beat the cost of living crisis – go on holiday
Editor's letter As inflation rages, energy bills soar and the pound tanks, what’s a good way to save money this winter? Go on holiday, says Merryn Somerset Webb.
-
How capitalism has been undermined by poor governance
Editor's letter Capitalism’s “ruthless efficiency” has been undermined by poor governance, a lack of competition and central banks’ over-enthusiastic money printing, says Andrew Van Sickle.
-
Don't be scared by economic forecasting
Editor's letter The Bank of England warned last week the UK will tip into recession this year. But predictions about stockmarkets, earnings or macroeconomic trends can be safely ignored, says Andrew Van Sickle.
-
The biggest change in the last 17 years – the death of the “Greenspan put”
Editor's letter Since I joined MoneyWeek 17 years ago, says John Stepek, we’ve seen a global financial crisis, a eurozone sovereign debt crisis , several Chinese growth scares, a global pandemic, and a land war in Europe. But the biggest change is the death of the “Greenspan put”.
-
The wolf returns to the eurozone’s door
Editor's letter The eurozone’s intrinsic flaws have been exposed again as investors’ fears about Italy’s ability to pay its debt sends bond yields soaring.
-
Things won't just return to normal – that's not how inflation works
Editor's letter You might think that, if inflation is indeed “transitory”, we just need to wait and everything will return to “normal”. But this is a grave misunderstanding of how inflation works, says John Stepek.
-
Car hire and the strangeness of the post-pandemic economy
Editor's letter A global shortage of hire cars and unusually high hotel occupancy rates sum up the post-pandemic global economy in a nutshell, says Merryn Somerset Webb, with enhanced demand meeting restricted supply.
-
Why we need to get a grip on our government
Editor's letter Our government is trying to do too much, enacting policies that are destructive to the private sector. It needs to drop the the feel-good nonsense and create policies that lead to long-term wealth, says Merryn Somerset Webb.
