After two years of contraction, hiring in the asset- and wealth-management industry rebounded worldwide in 2010, and compensation is set to show modest gains, says a new report by New York-based global executive search and assessment firm Russell Reynolds Associates.

The asset- and wealth-management industry worldwide is beginning to feel pressure to attract or retain key personnel who perform certain functions, says the 14th annual report, titled Navigating the New Terrain in the Asset and Wealth Management Industry, released last month. Yet, while compensation in the U.S. is set to increase 10 percent to 15 percent this year, compensation in Canada, Europe, and Asia is expected to jump 15 percent to 20 percent, although bonus pools will be finalized later this year than in previous years.

The report looks at talent and compensation trends within both traditional asset- and wealth-management firms and those focusing on alternative investments, including hedge funds, real estate, and private equity in the Americas, Europe, and Asia-Pacific region.

"Private banking divisions at both local and international banks that avoided major problems during the crisis and are able to maintain their solid platforms in Mexico sought to attract private bankers with sound track records to complement their local distribution capacity," says Eugenio Riquelme, a managing director in Russell Reynolds' Mexico City office. "Fortunately, they have been able to recruit the kind of top talent that has already been seeking strong platforms to service their assets under management from financial institutions that were troubled."

Similarly, Renato Furtado, an executive director in the firm's financial-services practice based in Sao Paulo, Brazil, says, "There has been an increasing number of foreign firms looking at Brazil with plans to either build or expand their platforms, especially in the equities space. This intensifies competition for talent and drives up compensation levels at the same time."

Key findings from the report include:

Asset managers returned to the basics to get business back on track and focused on growth, now that much of the industry's dramatic cost cutting is behind them. Firms regarded highly for their integrity, transparency, and simplicity attracted not only clients, but talent.

"Boring is the new brilliant," says Debra Brown, a managing director in the firm's asset- and wealth-management practice.

Wealth management remains highly competitive, with dominant national firms fighting to hold market share in the face of consolidation and the increased threat from smaller boutiques and regional players, who are gaining ground in their ability to attract wealthy clients and top advisory talent.

Demand for CEOs with investment backgrounds continued into 2010, yet finding qualified individuals with the desired mix of leadership and technical skills proved increasingly difficult. As a result, candidates were coming from other branches of the financial-services industry such as investment banking, capital markets, and the securities business.

Chief investment officers were in great demand this year as endowments, foundations, pension funds, family offices, sovereign wealth funds, and asset and wealth managers were in the market for talent.

As Brown points out, the competitive headwinds from numerous simultaneous CIO searches led many boards and investment committees to consider creative, nontraditional approaches.

In fixed income, credit continued to be a hot spot, with the demand for "high-yield" talent and teams picking up again this year. Hedge funds saw positive flows in event-driven, global macro, and distressed credit, adding to the upward pressure on this group.

Assets started flowing back into hedge funds this year, though new fund formation has become increasingly difficult with fewer and smaller launches. Larger, more mature hedge fund firms face the challenge of passing on the equity value to the next generation, such that succession planning and ownership structure have come under increased review.

Investors began allocating capital to real estate again, although slowly and somewhat with a bias towards core strategies, which drove the hiring of senior acquisition professionals. Real estate investment firms sought to build portfolio value by hiring strong operating leadership for their assets and building succession plans for the senior executives and functional executives of their operating companies. More than ever, evidence showed, compensation will be driven by firms' own fortunes rather than by peer group: Those who can pay well, will; those who can't, won't.

At both traditional and alternative firms, the most sophisticated institutional executives who have longstanding client relationships and deep product expertise, knowledge of capital markets, and familiarity with complex financial instruments were in high demand. Compensation for those fitting this profile are expected to be up significantly more next year than the 10 to 15 percent that's anticipated to be the industry norm.

Technology and operations functions gained significant visibility with executive committees and boards, due to the ability of chief information officers to drive consolidation and automation of systems, and thus lower costs. The demand for talent is putting upward pressure on compensation for CIOs, with increases of up to 15 to 20 percent expected.

Having strengthened their risk-management functions after the meltdown, many institutions sought to move them to the next level, making risk management a more integral part of business performance. There was increased demand for risk managers who have had line or profit-loss responsibility, as well as for those who have the demonstrated ability to work effectively with investors, bankers, and traders. The rise in compensation for risk managers, though, is expected to level off somewhat in the coming year.

Financial officer headcount remained steady in 2010, as companies continued to upgrade financial officer talent and weed out underperformers. CFOs, controllers, and tax and audit executives now are expected to be strategic and proactive in working with senior management to create efficiencies across the organization. Compensation for those positions is expected to be flat to up 10 percent over last year.

Russell Reynolds Associates is a global executive search and assessment firm, with more than 300 consultants based in 39 offices worldwide. It says that its consultants work closely with public and private organizations to identify, assess, and recruit senior executives and board members to drive long-term growth and success.