The cash cows can no longer be milked. In the late 1990s M&A, equity and corporate finance may have provided a steady stream of income for investment banks and headhunters alike. But times have changed. With mandates for M&A searches a thing of the past, headhunters are looking to new areas to replace lost revenue streams. Law, asset management, private banking, insurance and retail banking top the list.
It is private banking, often seen as a sub-sector of asset management, that has perhaps attracted the most attention. Headhunters Sheffield Haworth and Odgers Ray and Berndston were among those moving into private banking in 2000. Other search firms are trying to build their capacity. Napier Scott recently hired Jim Paterson, an ex-private banker from Merrill Lynch Paterson is looking to hire an additional four headhunters for the firm's private banking business.
However, according to established experts in private banking search, Paterson's new hires could be sitting on their hands. Despite some hiring activity at Deutsche Bank, Goldman Sachs, Merrill Lynch, UBS Warburg, Credit Suisse First Boston (CSFB) and Barclays Capital, private banking searches have been affected by a frosty recruiting climate not dissimilar to that affecting other sectors.
Christian Sulger Buel, of the sector specialist Sulger Buel, says: 'Globally, mandates in private banking are down 30% this year. There is less work.' However, Sulger Buel says that there are geographical pockets where private banking hiring is still strong - markets in the UK, Italy, France, Germany and Spain are more dynamic.
Dynamism or no, it is not only private banking that has attracted the attention of search firms seeking to compensate the downturn in equities and corporate finance. Asset management is also proving increasingly fertile ground for headhunters. Baines Gwinner and Whitehead Mann have increased their buyside search capacity.
Generalists are diversifying as widely as possible. Baines Gwinner has emerged as one of the top legal headhunters. Anthony May, a legal sector specialist at the firm, says: 'There has been considerable growth in the legal search market over the past few years.' According to May, legal headhunting is relatively new in London, where firms have traditionally grown talent in-house.
However, globalisation and the arrival of American law firms with little alternative but to poach senior local staff has forced UK lawyers to 'take their gloves off' and use headhunters to make their own lateral hires. There is still a long way to go in the sector, however, which is one reason firms such as Sheffield Haworth plan to target it.
Strategies for escaping the downturn have also included focusing on counter-cyclical areas. Longbridge, for example, has moved into debt restructuring, or 'stressed M&A'. Consultant Lena Bailey says: 'It is one of the areas that is still seeing growth on Wall Street. Independents such as Lazard and Rothschild are strongest in the debt restructuring market. Larger houses are absent from the market: offering restructuring advice conflicts with lending activities.'
Simon Hearn at Russell Reynolds says risk transfer has also proven a huge growth area. Banks such as Lehman and BNP Paribas are increasingly joining insurance giants such as Swiss Re in offering reinsurance products. As Russell Reynolds' insurance professional, Hearn works with fixed income and investment banking search teams to source the right people. Reflecting the potential of the insurance sector, Korn/Ferry has also been building its insurance capability. In November 2000 it hired key consultants out of Dixon, Delves & Andrews, a boutique search firm focused on the insurance market.
Another potential growth area is retail banking in which headhunters anticipate that consolidation and increased distribution of pension products may lead to more searches. According to Sally Rowley-Williams, head of financial services, Korn/Ferry has been paying increased attention to this sector, as has Spencer Stuart.
Finally, the rising salaries and increasing respectability of the back office mean that operations staff are also seen as a possible golden goose by some search firms. However, it is only top-end positions that merit attention.
At a more junior level, the middle and back office is amply serviced by contingency recruiters such as Robert Walters. Specialists such as Firth Ross Martin have a well-established capability in top end operations search. But generalists such as Whitehead Mann also claim expertise in the area, where mandates have apparently held up, despite redundancies for middle managers.
The scramble to refocus away from M&A and equity markets raises questions about the trend for specialisation in the headhunting sector, which took hold during the boom of the late 1990s. Then, sector specialists were all the rage. Now however, it would appear that flexibility brings advantages. Rupert Channing at Heidrick & Struggles says: 'We have a model that is designed to be elastic. Most partners are specialists but are literate in all product areas.'
Flexibility did not spare 15 of Heidrick & Struggles' London consultants who lost their jobs in June. However, it has spared revenues, which are up 80% this year, according to Channing. Other diversified headhunters are similarly sanguine about their performance in a difficult market. 'Larger headhunters are not reliant on any one area to survive,' says a spokesman at Spencer Stuart. Michael Weber at Whitehead Mann, a firm that also claims to have maintained turnover so far in 2001, says: 'Top professional firms have been OK, because they are spread across a wide range of areas.'