Amid Next Year's Recession Outlook... US Asset Management Firms Face Second Wave of Layoffs

Increased Demand for Safe Assets like Bonds
Charles Schwab, Prudential, Invesco
Initiate Second Round of Restructuring and Cost-Cutting

Major asset management firms have once again launched large-scale restructuring in response to the forecasted U.S. economic recession next year. This follows the wave of layoffs that swept through at the end of last year. Earlier this year, there was optimism that the U.S. economy might achieve a 'no landing' soft landing beyond a smooth landing. However, as concerns about a recession have grown with signs of a gradual slowdown in employment, asset managers are now preparing for a tough winter through workforce reductions.

According to major foreign media on the 5th (local time), Charles Schwab, a major U.S. asset management firm, plans to lay off 2,000 employees, accounting for 5-6% of its total workforce of 35,900. Prudential, another U.S. asset management company, is also expected to reduce its staff by around 240 employees. The company anticipates incurring $200 million in costs due to restructuring in the fourth quarter of this year. Invesco is projected to spend $15 million to $20 million in severance payments and organizational restructuring costs in the fourth quarter. The company also spent $39 million in the third quarter on severance payments, twice the initially expected amount, indicating that the scale of restructuring was larger than anticipated.

The entry of major U.S. asset management firms into a 'second round of layoffs' this year is largely due to increased investor demand for safe assets amid recession forecasts for next year. As demand for safe assets rises, firms have begun reducing personnel in equity management. Recently, investors have been focusing on relatively safer money market funds (MMFs) or bond investments rather than riskier equities, anticipating an economic cooling and reduced corporate profits. On Wall Street, there is analysis suggesting that the Federal Reserve (Fed) may have ended its tightening cycle by late this year or early next year due to the expected economic slowdown, making bonds a more favorable investment than stocks.

Richard Saperstein, CIO of HighTower Treasury Partners, a U.S. asset management firm, said, "The effects of Fed tightening will manifest going forward, and economic activity will slow further. Equities probably peaked this year, and now attention should be on the bond market." He added, "Now is a very good time to invest in government bonds."

Due to this trend, the wave of layoffs in the U.S. asset management industry is expected to continue for the time being. According to consulting firm Johnson Associates, as asset management firms cut costs through workforce restructuring, organizational reorganization, and consolidation, year-end bonuses for asset managers are expected to decrease by 5-10% compared to a year ago.

Chris Connors, senior executive at Johnson Associates, stated, "The outlook for the traditional asset management sector next year is not very optimistic. Rather, it is more cautious and quite pessimistic."

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