Home ListingJanuary 16, 2014

Ownership Equals Performance, Asset Management Study Finds

<em>A consulting firm has found establishing an early structure of employee ownership could be crucial in defining success at an asset management firm.</em>

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(January 15, 2014) — An asset management firm’s success largely depends on its structure, particularly employee ownership and management, according to Margolis/Kass Advisors.

“While good sales skills and pre-existing relationships are unquestionably beneficial, they only work if top-down company issues are successfully addressed first,” said Janie Kass, the firm’s managing director.

One of the most significant factors in developing a strong structural framework is allocating ownership. The consulting firm found giving ownership to employees would encourage them to “work for the common good. Employee ownership—or a structure containing a strong incentive program to benefit the firm’s growth long-term—encourages behavior to maximize the value of the firm; it aids in retention and influences individual actions.”

However, this decision would affect firms differently, especially by size. Kass said boutique firms often provide investors with transparency, independence, and greater attention to long-term goals, especially with greater employee ownerships.

Bigger firms such as insurance companies, banks, and capital firms, on the other hand, would have access to resources to help “accelerate growth,” Kass said.

When a firm is considering partnership with a larger firm—or a private equity firm—it should ensure investment returns and targets are met, as such goals could be lost as the bigger firm attempt to boost its stake value.

Margolis/Kass Advisors also emphasized that ownership should spread to various employees and not be exclusive to a handful of firm members.

“Extreme and firm-threatening events may be rare, but ownership concentrated in just a few hands can lead to less dramatic, but nonetheless damaging, inattention by team members on the key goal of meeting client expectations,” Kass said.

With such a structure in place, proper creation of senior management group would follow, said the consultant, increasing transparency in management: “This creates a functional balance which is essential for a firm to succeed and includes the key elements of success; firm oversight, investment results, client retention and growth, and the operations essential for a firm to function successfully.”