Description
The investment management Industry in North Carolina is large and growing. The industry accounts for 2‐3% of state employment, income and output. Employment of investment professionals has grown 26% over the last 7 years.
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Economic Analysis of the North Carolina
Investment Management Industry
By
Prof. Gregory W. Brown, Andrew Cooper, and Colby Isabel
The Kenan?Flagler Business School at the University of North Carolina at Chapel Hill
July 8, 2013
Summary of Findings
? The investment management Industry in North Carolina is large and growing. The industry accounts
for 2?3% of state employment, income and output. Employment of investment professionals has
grown 26% over the last 7 years. Survey respondents from the industry are very optimistic about
growth prospects for the next 3 years.
? Wages for investment professionals are more than three times the state’s average wage but lag the
national industry average by 41%. At least part of the wage difference is due to the lower cost of
living in NC relative to other major financial centers. The state should use this cost advantage as part
of an effort to attract investment management firms seeking to expand or relocate operations.
? Survey respondents see opportunities for policies that promote growth of the industry. The industry
appears to be especially sensitive to existing and proposed tax policy. Several respondents suggest
that the state could use its financial resources to help stimulate the investment industry through an
economic development program.
? Despite a large and growing industry, businesses cite few economic reasons for being located in the
state. The two most common reasons firms cite for their NC location are i) already residing in NC and
ii) quality of life. Given the efforts of other states to attract high value?added businesses, the state
should consider seeking a broader range of benefits for firms operating in North Carolina.
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I. Introduction
The goal of this report is to develop an understanding of the North Carolina businesses that provide
investment management services. We seek to understand the characteristics of businesses and their
employees, their economic impact, and their attitudes towards doing business in NC. A secondary goal
is to assist policy makers in identifying strategies that can help support and expand the investment
management industry in North Carolina.
This report has four parts. First we review employment statistics for specific jobs in the investment
management industry. Second we consider the size and economic impact of the industry in North
Carolina. Third, we report results of a survey of NC investment management businesses (conducted by
the researchers). Finally, we provide some suggestions for strategies that could help support and grow
the industry in NC.
II. Employment and Wages in Investment Management Industry
At the authors’ request, the North Carolina Department of Commerce Labor and Economic Analysis
Division provided detailed employment data for the investment management (IM) industry in North
Carolina. The authors analyzed the provided data at the sub?industry level based on the North American
Industry Classification System (NAICS) for activities related to investment management.
1
Underlying
Data were compiled by Economic Modeling Specialists (EMSI). EMSI is a reputable, widely used data
source that provides employment data and economic analysis to government, universities and private
industry.
Table 1 summarizes employment data for the specific sub?industries with the most jobs in 2012 as well
as for aggregates of other sub?industries with fewer total jobs. Overall, North Carolina has 3,192
establishments in IM?related industries in 2012. These establishments employed a total of 21,047
investment professionals. These values imply that the average establishment employs just 6.6
investment professionals. The low number of average workers emphasizes the importance of small
firms in the state despite the well?known presence of several major financial institutions with large NC
payrolls.
In 2012, the three largest sub?industries in terms of employment were i) securities brokerage, ii)
investment banking and securities dealing, and iii) portfolio management which employed a combined
14,988 investment professionals which represents 71% of the total IM professional jobs. While the
average firm in these three sub?industries is greater than the broad industry average, the typical firm is
still quite small with only 8.6 professionals.
During the financial crisis of 2007?2009, financial institutions in North Carolina experienced significant
changes in organizational structure and employment. The crisis impacted not just traditional lending
activities but also investment management operations. The data in Table 1 report how employment in
1
Specifically, we examine the following 6?digit sub?industries: 523120, 523110, 523920, 523930, 524292, 523140,
523210, 525910, 523999, 525110, 523910, 525920, 521110, 523130, 523991, 525120, 525990.
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investment management sub?industries has changed over the last seven years (2005 through 2012).
Despite the downturn during the crisis, employment grew a total of 26% or an average of 3.3% annually
over this period. Thus, the industry as a whole has continued to expand in NC despite a national
stagnation of investment management employment over this period.
2
At the sub?industry level,
employment growth has been strong in investment advice, portfolio management, third?party fund
administration, and securities brokerage. Employment has declined on average in the smaller catch?all
“Other” industry groups.
Table 1 also reports average earnings per job for both the NC and the U.S. as a whole. It is well known
that investment?related jobs are among the highest paying. The average earnings per job in NC were
$129,832 in 2012 which is about three times the state’s average wage of $41,750 for all industries.
3
Nonetheless, there is a large gap between the NC average earnings and the national average of
$220,461 for the same industries. This gap is likely attributable to several factors including i) a lower
cost of living in NC relative to major financial centers such as New York City and Boston, MA, and ii) a
relatively young work force, and iii) a larger proportion of lower skill/wage jobs within particular sub?
industries. The pay gaps exist for all sub?industries except those we classify as “Other Investment
Management” and are largest in portfolio management where NC jobs pay less than half of the national
average.
Table 1. Employment Statistics for Investment Management Professionals in North Carolina
2
The U.S. Bureau of Labor Statistics reports average annual employment growth in the U.S. of just 0.5% for the
Securities, Commodity Contracts, Investments (CES5552300001) industry. However, it is important to note that
U.S. employment data from BLS is not directly comparable to QCEW?based EMSI data.
3
Source:http://www.bls.gov/oes/current/oes_nc.htm#00?0000. However, it is important to note that U.S.
employment data from BLS is not directly comparable to QCEW?based EMSI data.
Jobs Average Earnings Per Job
Sub?Industry
Establish?
ments 2012
Since 2005
(% Change)
Next 3 Years*
(% Change)
North
Carolina Nation % Diff.
Securities Brokerage 1,012 5,493 37% 12% $119,185 $207,321 ?43%
Investment Banking / Securities Dealing 412 5,004 10% ?2% $175,978 $271,288 ?35%
Portfolio Management 308 4,491 48% 18% $135,728 $293,491 ?54%
Investment Advice 1,000 2,744 80% 17% $101,995 $168,470 ?39%
Third Party Fund Administration 132 2,139 41% 12% $64,038 $75,748 ?15%
Other Investment Management (1) 192 603 ?37% 6% $196,171 $195,794 0%
Other Investment?Related (2) 136 573 ?48% ?3% $91,798 $145,297 ?37%
All Sub?Industries 3,192 21,047 26% 10% $129,832 $220,461 ?41%
Source: NC Department of Commerce and Economi c Model i ng Speci al i sts Internati onal and author cal cul ati ons from thi s source data.
* Projecti ons by Economi c Model i ng Speci al i sts Internati onal provi ded by NC Department of Commerce.
(1) Incl udes Commodi ty Contracts Brokerage, Securi ti es and Commodi ty Exchanges, Open?End Investment Funds, Mi scel l aneous Fi nanci al
Investment Acti vi ti es, Pensi on Funds, Mi scel l aneous Intermedi ati on, Trusts, Estates, and Agency Accounts.
(2) Incl udes Monetary Authori ti es ? Central Bank, Mi scel l aneous Fi nanci al Investment Acti vi ti es, Heal th and Wel fare Funds, Other Fi nanci al
Vehi cl es, and Trust, Fi duci ary, and Custody Acti vi ti es.
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Economic Impact of Investment Management Industry
At the request of the authors, the Labor and Economic Analysis Division of the North Carolina
Department of Commerce conducted an economic impact study of the investment management
industry. We report here the results of their analysis verbatim and in its entirety. It is important to note
that the method used for this analysis necessitates industry and employment definitions that are
broader than in the previous section. Thus the values reported for total employment, income and
output include activities and job classifications related to financial support services not described above.
In particular, the results below include many employees in the investment?related financial services
industries who would not be considered “investment professionals” such as customer service
representatives and certain administrative staff. However, when calculating total economic impact of
the industry it is important to include these workers because their work helps to produce investment
management services and their incomes contribute to the area economy.
Introduction
This report estimates the economic contributions of the investment management industry to the North
Carolina economy. This analysis is not intended to indicate support for or against this industry by the
North Carolina Department of Commerce. The purpose of this report is to provide information related
to the estimated economic contribution of a particular industry’s activities. Results are estimates and
analyst discretion has been used to produce reasonable results.
Analysis Assumptions and Methodology
Commerce uses IMPLAN
4
software for economic impact modeling. IMPLAN allows researchers to
develop local level input?output models to estimate the economic impacts associated with marginal
changes in the economy, such as “shocks” of new production or output or contributions from existing
companies. The framework and methodological basis for the IMPLAN model is derived from the U.S. the
Bureau of Economic Analysis' Benchmark Input?Output Accounts. The IMPLAN model is widely used by
local, state, and federal government agencies as well as private industry and universities. The following
table summarizes data and assumptions used in developing the economic impact model for this
company.
Table 2. Analysis Details and Model Assumptions
Project Location/ Economic Impact Area North Carolina
IMPLAN Industry Sectors 356?Securities, Commodity Contracts,
Investments and Related Activities
359?Funds, Trusts, and Other Financial
Vehicles
IMPLAN Industry Employment Estimate 77,590
4
Minnesota IMPLAN Group, Inc. or MIG, Inc was founded in 1993 by Scott Lindall and Doug Olson as an outgrowth
of their work at the University of Minnesota starting in 1984. This developmental work closely involved the U.S.
Forest Service's Land Management Planning Unit in Fort Collins, and Dr. Wilbur Maki at the University of
Minnesota. For more information please visit www.IMPLAN.com.
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For the purpose of this analysis, analysts identified 18 investment management industry codes at the
six?digit NAICS level. These industry codes fall under two major categories that correspond to IMPLAN
codes: Securities, Commodity Contracts, Investments and Related Activities (356) and Funds, Trusts, and
Other Financial Vehicles (359). 2011 IMPLAN employment input data were used to represent
investment management activity for the contribution analysis. Using IMPLAN employment estimates as
input data estimated both 356 “Securities, Commodity Contracts, Investments and Related Activities”
and 359 “Funds, Trusts, and Other Financial Vehicles.”
5
This study estimates the contribution that the investment management industry makes to North
Carolina’s overall economy. A contribution analysis differs from traditional economic impact analysis
because it does not attempt to measure the increased demand that would occur from new economic
activity. Instead, this contribution analysis models the results of removing investment management
industry activity from the state’s economy.
Analysts used IMPLAN
6
economic impact analysis software to estimate the total economic contribution
that this industry’s employment makes to North Carolina’s economy, inputting IMPLAN’s employment
estimates to represent investment management activity for this contribution analysis. IMPLAN measures
the trading patterns of industries along with the income and spending patterns of households to model
total contributions to the economy.
Key Economic Impact Definitions
Direct Effect The known or predicted change in the economy that is being studied. In this
analysis, the direct impacts are the changes associated with investment
management activities in the state.
Indirect Effect Secondary impact caused to industries in the supply chain of the direct impact.
In this case, indirect impacts would result from industries supplying resources
and materials for investment management activities.
Induced Effect Household spending on goods and services from direct and indirect employment
(and increases in labor income).
Employment The number of full?time and part?time jobs; measured by place of employment.
Employees, sole proprietors, and active partners are included, but unpaid family
workers and volunteers are not.
Labor Income All forms of employment income, including employee compensation (wages and
benefits) and proprietor income.
Job Years IMPLAN measures employment impacts in job?years with each unit of
employment equivalent to one job for one year.
Output The cost of intermediate inputs plus value added (compensation and profit).
Output is equal to sales in service industries and equal to sales plus the change
in inventory for manufacturers.
Value Added Value added is the difference between total output and the cost of
intermediate inputs. Value added is a measure of an individual producer,
industry, or sector’s contribution to the state’s gross domestic product.
Source: www.implan.com
5
Some investment management activity that occurs within the banking and insurance sectors may not be captured
using this method which may have resulted in more conservative contribution estimates.
6
IMPLAN data is from 2011 and is reported in 2011 dollars.
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The total economic contribution is composed of three sets of effects – direct, indirect, and induced.
Direct effects take place within the business or industry for which the analysis is run – in this case, the
investment management industry. Indirect effects
7
result from increased demand for suppliers of direct
industries. For example, an office supply store may sell more office supplies to a brokerage firm after it
hires additional stock brokers. Induced effects are the changes in household purchasing based on
changes in compensation levels associated with direct and indirect employment sustained by the
investment management industry.
Estimated Economic Contribution
With IMPLAN software, economic contributions can be reported in terms of employment, labor income
(including benefits), value added (contribution to the state’s gross domestic product), and output (the
market value of goods and services produced during the base year).
The 77,590 direct jobs in North Carolina’s investment management industry sustain an additional 64,050
jobs in the state’s economy, making the total employment supported by the investment management
industry in the state approximately 141,640 jobs. Based on IMPLAN figures this number represents
about 2.7 percent of total state employment. Comparisons for labor income, value added, and output
yield similar results. The investment management industry sustains about 2.2 percent of labor income,
1.9 percent of the state’s gross domestic product (value added), and 2.7 percent of total state output.
Taken together the model’s estimates suggest that the investment management industry contributes
about 1.9 percent of the North Carolina economy. Table 3 shows the breakdown of contributions by
effect type and measure.
Table 3. Estimates of Economic Contribution
Employment
Labor Income
($ millions)
Value Added
($ millions)
Output
($ millions)
Investment Management:
Direct Effect 77,590 $2,862 $3,238 $12,529
Indirect Effect 34,110 1,581 2,691 4,341
Induced Effect 29,940 1,139 2,106 3,479
Total Effect 141,640 5,582 8,035 20,349
North Carolina Total 5,179,510 $255,604 $415,119 $755,660
Investment Management % of Total 2.7% 2.2% 1.9% 2.7%
Source: Source: MIG IMPLAN 3.0; model created March 2013. All monetary impacts presented in 2011 dollars.
Disclaimer: Economic contribution modeling provides estimates of existing industry economic activity.
This type of analysis is not predictive but instead describes how an industry contributes to the current
economy of the study area. It may serve as a starting point upon which to base further research using
other forms of analysis such as fiscal impact analysis. Commerce’s purpose in completing this analysis is
to provide information and is neither an endorsement for or against this industry. If industry data
7
The model was adjusted to avoid double?counting by not allowing indirect effects on the industries being studied.
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changed for any reason, it would alter the results of the analysis. For additional information, please
contact Timothy Aylor (919.707.1554) or Judy Woodson Bruhn at (919.707.1528).
III. Survey of Investment Management Firms in North Carolina:
In February 2013, the authors surveyed a sample of North Carolina firms in the investment management
business. We limited our contact to a single person at each firm and attempted to contact the most
senior executive we could identify with oversight of the investment management process. In the survey
we requested both quantitative and qualitative information about their business and views regarding
the broader industry.
With about 60 industry respondents, our survey contained a significant amount of quantitative data that
allowed us to better classify various roles within the industry by factors such as location, compensation,
and assets under management. Although the responses were gleaned from a limited number of
institutions, we believe the resulting data are representative of the broader industry within North
Carolina. For example, Figure 1 shows the geographic distribution of survey respondents in major areas
of North Carolina. As expected, the results indicate that most firms are concentrated in Charlotte and
the Triangle (Raleigh Durham, and Chapel Hill metro area). Figure 2 shows the distribution of firm type
with by far the largest group self?identifying as Registered Investment Advisors and not another firm
type. These are largely firms that focus on personal wealth management and we subsequently refer to
them as such.
Figure 1: Respondent Location Figure 2: Respondent Type
Other includes Hickory, Wilmington, Greenville and Davidson
We surveyed firms on average annual compensation for investment professionals and report in Table 4
the medians for major geographic areas. Unsurprisingly, Charlotte and the Triangle lead in
compensation. Firms located in the Triad and Asheville report slightly lower compensation.
18
6 18
6
6
Triangle
Triad
Charlotte
Asheville
Other
40
1
7
1
2
1
1
11
RIA
Hedge Fund
Private Equity
Fund of Funds
Venture Capital
Business Development Co
Broker Dealer
Real Estate Fund/REIT
Commercial Bank
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Table 4: Average Firm Compensation by Location
(Based on medians of survey range midpoints)
Location Average annual compensation
Triangle $150,000
Triad $125,000
Charlotte $150,000
Asheville $125,000
Other $87,500
Table 5 reports firm characteristics by firm type. Institutional firms tend to have more employees,
higher compensation, and more assets under management than personal wealth management firms.
Respondents that classified their business as a Hedge Fund or Venture Capital firm reported the highest
average annual income, followed by Business Development Companies and broader Private Equity
(results not tabled). While ranking towards the bottom in terms of compensation, Broker Dealers and
Commercial Banks employ, on average, more people than their higher?salaried counterparts in Venture
Capital and Private Equity (results not tabled).
Table 5: Other Characteristics by Firm Type
(Based on survey range midpoints)
Average Number
of Employees
Median
Compensation
Median AUM
($ millions)
Personal Wealth Management 10 $125,000 $500
Institutional Buy?Side Firms 29 $175,000 $750
We also note that the majority of firms responding to the survey managed between $100 and $499
million in assets. This is consistent with the payroll data provided in the first section which showed a
large number of small firms and is likely related to the high number of personal wealth management
firms (most of which have a client base with lower levels of investible wealth).
Businesses in the NC investment management industry are unequivocally positive about future growth
prospects. 100% of respondents expect to grow the number of investment professionals employed at
their firm’s over the next three years. In addition, 98% of firm’s expect to grow the number of other
employees.
The qualitative portion of our survey focused on why investment management organizations choose to
operate in North Carolina and what would contribute to business expansion. The results provide some
expected finding as well as less anticipated insights. When asked what incentivizes their organization to
operate in North Carolina, the most common answer was simply that they had already been a resident
or established the business in the state. Other than the fact that businesses already reside in North
Carolina, little appears to be keeping firms in the state. In particular, the second most common
response, cited by 28% of respondents, relates to the perceived high quality of life in the state. About
20% of respondents noted the strong state university system and the talent pool available to firms as a
reason for locating in North Carolina. Just 6% of respondents stated advantageous tax structures as
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their reason for locating in the state and another 6% specifically stated that taxes in the state were a
disadvantage with one respondent actually noting that high NC taxes had led the firm to investigate
moving to Tennessee.
We report here a selection of representative responses to the first open?ended survey question, “As
compared to other states, what incentivizes your organization to operate in North Carolina?”
“Diverse economy, growing population of affluent families and business owners”
“Partners are residents. Universities are sources of investors. Large, established medical
community.”
“NC provides high quality of life. Sophisticated transit hubs, financial and cultural
centers, intellectual and academic centers at an economic value superior to NE corridor
or West Coast.”
“Universities and access to reasonable talent pool, quality of life, good airport.”
When asked what would incentivize business expansion within the state, by far the most common reply
(provided by 70% of respondents) was some form of lower taxes. Respondents cited specific concerns
related to possible moves to include professional services, investment advisory and financial planning
fees in the sales tax base. Several respondents suggest a role for the State expanding initiatives to seed
new firms in NC. We report here a selection of representative responses to the second open?ended
survey question, “What potential state and local policy actions would make it more likely for you to
expand your business in North Carolina?”
“Our tax rates and our debt per capita look a lot more like California, Illinois and
Massachusetts than like the southern states we compete with in Alabama, Georgia and
Virginia. Stop building infrastructure. Our infrastructure is generally fine, and at least
good enough for now. Save the money and retire some debt.”
“Investment management companies with
The investment management Industry in North Carolina is large and growing. The industry accounts for 2‐3% of state employment, income and output. Employment of investment professionals has grown 26% over the last 7 years.
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Economic Analysis of the North Carolina
Investment Management Industry
By
Prof. Gregory W. Brown, Andrew Cooper, and Colby Isabel
The Kenan?Flagler Business School at the University of North Carolina at Chapel Hill
July 8, 2013
Summary of Findings
? The investment management Industry in North Carolina is large and growing. The industry accounts
for 2?3% of state employment, income and output. Employment of investment professionals has
grown 26% over the last 7 years. Survey respondents from the industry are very optimistic about
growth prospects for the next 3 years.
? Wages for investment professionals are more than three times the state’s average wage but lag the
national industry average by 41%. At least part of the wage difference is due to the lower cost of
living in NC relative to other major financial centers. The state should use this cost advantage as part
of an effort to attract investment management firms seeking to expand or relocate operations.
? Survey respondents see opportunities for policies that promote growth of the industry. The industry
appears to be especially sensitive to existing and proposed tax policy. Several respondents suggest
that the state could use its financial resources to help stimulate the investment industry through an
economic development program.
? Despite a large and growing industry, businesses cite few economic reasons for being located in the
state. The two most common reasons firms cite for their NC location are i) already residing in NC and
ii) quality of life. Given the efforts of other states to attract high value?added businesses, the state
should consider seeking a broader range of benefits for firms operating in North Carolina.
2 | P a g e
I. Introduction
The goal of this report is to develop an understanding of the North Carolina businesses that provide
investment management services. We seek to understand the characteristics of businesses and their
employees, their economic impact, and their attitudes towards doing business in NC. A secondary goal
is to assist policy makers in identifying strategies that can help support and expand the investment
management industry in North Carolina.
This report has four parts. First we review employment statistics for specific jobs in the investment
management industry. Second we consider the size and economic impact of the industry in North
Carolina. Third, we report results of a survey of NC investment management businesses (conducted by
the researchers). Finally, we provide some suggestions for strategies that could help support and grow
the industry in NC.
II. Employment and Wages in Investment Management Industry
At the authors’ request, the North Carolina Department of Commerce Labor and Economic Analysis
Division provided detailed employment data for the investment management (IM) industry in North
Carolina. The authors analyzed the provided data at the sub?industry level based on the North American
Industry Classification System (NAICS) for activities related to investment management.
1
Underlying
Data were compiled by Economic Modeling Specialists (EMSI). EMSI is a reputable, widely used data
source that provides employment data and economic analysis to government, universities and private
industry.
Table 1 summarizes employment data for the specific sub?industries with the most jobs in 2012 as well
as for aggregates of other sub?industries with fewer total jobs. Overall, North Carolina has 3,192
establishments in IM?related industries in 2012. These establishments employed a total of 21,047
investment professionals. These values imply that the average establishment employs just 6.6
investment professionals. The low number of average workers emphasizes the importance of small
firms in the state despite the well?known presence of several major financial institutions with large NC
payrolls.
In 2012, the three largest sub?industries in terms of employment were i) securities brokerage, ii)
investment banking and securities dealing, and iii) portfolio management which employed a combined
14,988 investment professionals which represents 71% of the total IM professional jobs. While the
average firm in these three sub?industries is greater than the broad industry average, the typical firm is
still quite small with only 8.6 professionals.
During the financial crisis of 2007?2009, financial institutions in North Carolina experienced significant
changes in organizational structure and employment. The crisis impacted not just traditional lending
activities but also investment management operations. The data in Table 1 report how employment in
1
Specifically, we examine the following 6?digit sub?industries: 523120, 523110, 523920, 523930, 524292, 523140,
523210, 525910, 523999, 525110, 523910, 525920, 521110, 523130, 523991, 525120, 525990.
3 | P a g e
investment management sub?industries has changed over the last seven years (2005 through 2012).
Despite the downturn during the crisis, employment grew a total of 26% or an average of 3.3% annually
over this period. Thus, the industry as a whole has continued to expand in NC despite a national
stagnation of investment management employment over this period.
2
At the sub?industry level,
employment growth has been strong in investment advice, portfolio management, third?party fund
administration, and securities brokerage. Employment has declined on average in the smaller catch?all
“Other” industry groups.
Table 1 also reports average earnings per job for both the NC and the U.S. as a whole. It is well known
that investment?related jobs are among the highest paying. The average earnings per job in NC were
$129,832 in 2012 which is about three times the state’s average wage of $41,750 for all industries.
3
Nonetheless, there is a large gap between the NC average earnings and the national average of
$220,461 for the same industries. This gap is likely attributable to several factors including i) a lower
cost of living in NC relative to major financial centers such as New York City and Boston, MA, and ii) a
relatively young work force, and iii) a larger proportion of lower skill/wage jobs within particular sub?
industries. The pay gaps exist for all sub?industries except those we classify as “Other Investment
Management” and are largest in portfolio management where NC jobs pay less than half of the national
average.
Table 1. Employment Statistics for Investment Management Professionals in North Carolina
2
The U.S. Bureau of Labor Statistics reports average annual employment growth in the U.S. of just 0.5% for the
Securities, Commodity Contracts, Investments (CES5552300001) industry. However, it is important to note that
U.S. employment data from BLS is not directly comparable to QCEW?based EMSI data.
3
Source:http://www.bls.gov/oes/current/oes_nc.htm#00?0000. However, it is important to note that U.S.
employment data from BLS is not directly comparable to QCEW?based EMSI data.
Jobs Average Earnings Per Job
Sub?Industry
Establish?
ments 2012
Since 2005
(% Change)
Next 3 Years*
(% Change)
North
Carolina Nation % Diff.
Securities Brokerage 1,012 5,493 37% 12% $119,185 $207,321 ?43%
Investment Banking / Securities Dealing 412 5,004 10% ?2% $175,978 $271,288 ?35%
Portfolio Management 308 4,491 48% 18% $135,728 $293,491 ?54%
Investment Advice 1,000 2,744 80% 17% $101,995 $168,470 ?39%
Third Party Fund Administration 132 2,139 41% 12% $64,038 $75,748 ?15%
Other Investment Management (1) 192 603 ?37% 6% $196,171 $195,794 0%
Other Investment?Related (2) 136 573 ?48% ?3% $91,798 $145,297 ?37%
All Sub?Industries 3,192 21,047 26% 10% $129,832 $220,461 ?41%
Source: NC Department of Commerce and Economi c Model i ng Speci al i sts Internati onal and author cal cul ati ons from thi s source data.
* Projecti ons by Economi c Model i ng Speci al i sts Internati onal provi ded by NC Department of Commerce.
(1) Incl udes Commodi ty Contracts Brokerage, Securi ti es and Commodi ty Exchanges, Open?End Investment Funds, Mi scel l aneous Fi nanci al
Investment Acti vi ti es, Pensi on Funds, Mi scel l aneous Intermedi ati on, Trusts, Estates, and Agency Accounts.
(2) Incl udes Monetary Authori ti es ? Central Bank, Mi scel l aneous Fi nanci al Investment Acti vi ti es, Heal th and Wel fare Funds, Other Fi nanci al
Vehi cl es, and Trust, Fi duci ary, and Custody Acti vi ti es.
4 | P a g e
Economic Impact of Investment Management Industry
At the request of the authors, the Labor and Economic Analysis Division of the North Carolina
Department of Commerce conducted an economic impact study of the investment management
industry. We report here the results of their analysis verbatim and in its entirety. It is important to note
that the method used for this analysis necessitates industry and employment definitions that are
broader than in the previous section. Thus the values reported for total employment, income and
output include activities and job classifications related to financial support services not described above.
In particular, the results below include many employees in the investment?related financial services
industries who would not be considered “investment professionals” such as customer service
representatives and certain administrative staff. However, when calculating total economic impact of
the industry it is important to include these workers because their work helps to produce investment
management services and their incomes contribute to the area economy.
Introduction
This report estimates the economic contributions of the investment management industry to the North
Carolina economy. This analysis is not intended to indicate support for or against this industry by the
North Carolina Department of Commerce. The purpose of this report is to provide information related
to the estimated economic contribution of a particular industry’s activities. Results are estimates and
analyst discretion has been used to produce reasonable results.
Analysis Assumptions and Methodology
Commerce uses IMPLAN
4
software for economic impact modeling. IMPLAN allows researchers to
develop local level input?output models to estimate the economic impacts associated with marginal
changes in the economy, such as “shocks” of new production or output or contributions from existing
companies. The framework and methodological basis for the IMPLAN model is derived from the U.S. the
Bureau of Economic Analysis' Benchmark Input?Output Accounts. The IMPLAN model is widely used by
local, state, and federal government agencies as well as private industry and universities. The following
table summarizes data and assumptions used in developing the economic impact model for this
company.
Table 2. Analysis Details and Model Assumptions
Project Location/ Economic Impact Area North Carolina
IMPLAN Industry Sectors 356?Securities, Commodity Contracts,
Investments and Related Activities
359?Funds, Trusts, and Other Financial
Vehicles
IMPLAN Industry Employment Estimate 77,590
4
Minnesota IMPLAN Group, Inc. or MIG, Inc was founded in 1993 by Scott Lindall and Doug Olson as an outgrowth
of their work at the University of Minnesota starting in 1984. This developmental work closely involved the U.S.
Forest Service's Land Management Planning Unit in Fort Collins, and Dr. Wilbur Maki at the University of
Minnesota. For more information please visit www.IMPLAN.com.
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For the purpose of this analysis, analysts identified 18 investment management industry codes at the
six?digit NAICS level. These industry codes fall under two major categories that correspond to IMPLAN
codes: Securities, Commodity Contracts, Investments and Related Activities (356) and Funds, Trusts, and
Other Financial Vehicles (359). 2011 IMPLAN employment input data were used to represent
investment management activity for the contribution analysis. Using IMPLAN employment estimates as
input data estimated both 356 “Securities, Commodity Contracts, Investments and Related Activities”
and 359 “Funds, Trusts, and Other Financial Vehicles.”
5
This study estimates the contribution that the investment management industry makes to North
Carolina’s overall economy. A contribution analysis differs from traditional economic impact analysis
because it does not attempt to measure the increased demand that would occur from new economic
activity. Instead, this contribution analysis models the results of removing investment management
industry activity from the state’s economy.
Analysts used IMPLAN
6
economic impact analysis software to estimate the total economic contribution
that this industry’s employment makes to North Carolina’s economy, inputting IMPLAN’s employment
estimates to represent investment management activity for this contribution analysis. IMPLAN measures
the trading patterns of industries along with the income and spending patterns of households to model
total contributions to the economy.
Key Economic Impact Definitions
Direct Effect The known or predicted change in the economy that is being studied. In this
analysis, the direct impacts are the changes associated with investment
management activities in the state.
Indirect Effect Secondary impact caused to industries in the supply chain of the direct impact.
In this case, indirect impacts would result from industries supplying resources
and materials for investment management activities.
Induced Effect Household spending on goods and services from direct and indirect employment
(and increases in labor income).
Employment The number of full?time and part?time jobs; measured by place of employment.
Employees, sole proprietors, and active partners are included, but unpaid family
workers and volunteers are not.
Labor Income All forms of employment income, including employee compensation (wages and
benefits) and proprietor income.
Job Years IMPLAN measures employment impacts in job?years with each unit of
employment equivalent to one job for one year.
Output The cost of intermediate inputs plus value added (compensation and profit).
Output is equal to sales in service industries and equal to sales plus the change
in inventory for manufacturers.
Value Added Value added is the difference between total output and the cost of
intermediate inputs. Value added is a measure of an individual producer,
industry, or sector’s contribution to the state’s gross domestic product.
Source: www.implan.com
5
Some investment management activity that occurs within the banking and insurance sectors may not be captured
using this method which may have resulted in more conservative contribution estimates.
6
IMPLAN data is from 2011 and is reported in 2011 dollars.
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The total economic contribution is composed of three sets of effects – direct, indirect, and induced.
Direct effects take place within the business or industry for which the analysis is run – in this case, the
investment management industry. Indirect effects
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result from increased demand for suppliers of direct
industries. For example, an office supply store may sell more office supplies to a brokerage firm after it
hires additional stock brokers. Induced effects are the changes in household purchasing based on
changes in compensation levels associated with direct and indirect employment sustained by the
investment management industry.
Estimated Economic Contribution
With IMPLAN software, economic contributions can be reported in terms of employment, labor income
(including benefits), value added (contribution to the state’s gross domestic product), and output (the
market value of goods and services produced during the base year).
The 77,590 direct jobs in North Carolina’s investment management industry sustain an additional 64,050
jobs in the state’s economy, making the total employment supported by the investment management
industry in the state approximately 141,640 jobs. Based on IMPLAN figures this number represents
about 2.7 percent of total state employment. Comparisons for labor income, value added, and output
yield similar results. The investment management industry sustains about 2.2 percent of labor income,
1.9 percent of the state’s gross domestic product (value added), and 2.7 percent of total state output.
Taken together the model’s estimates suggest that the investment management industry contributes
about 1.9 percent of the North Carolina economy. Table 3 shows the breakdown of contributions by
effect type and measure.
Table 3. Estimates of Economic Contribution
Employment
Labor Income
($ millions)
Value Added
($ millions)
Output
($ millions)
Investment Management:
Direct Effect 77,590 $2,862 $3,238 $12,529
Indirect Effect 34,110 1,581 2,691 4,341
Induced Effect 29,940 1,139 2,106 3,479
Total Effect 141,640 5,582 8,035 20,349
North Carolina Total 5,179,510 $255,604 $415,119 $755,660
Investment Management % of Total 2.7% 2.2% 1.9% 2.7%
Source: Source: MIG IMPLAN 3.0; model created March 2013. All monetary impacts presented in 2011 dollars.
Disclaimer: Economic contribution modeling provides estimates of existing industry economic activity.
This type of analysis is not predictive but instead describes how an industry contributes to the current
economy of the study area. It may serve as a starting point upon which to base further research using
other forms of analysis such as fiscal impact analysis. Commerce’s purpose in completing this analysis is
to provide information and is neither an endorsement for or against this industry. If industry data
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The model was adjusted to avoid double?counting by not allowing indirect effects on the industries being studied.
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changed for any reason, it would alter the results of the analysis. For additional information, please
contact Timothy Aylor (919.707.1554) or Judy Woodson Bruhn at (919.707.1528).
III. Survey of Investment Management Firms in North Carolina:
In February 2013, the authors surveyed a sample of North Carolina firms in the investment management
business. We limited our contact to a single person at each firm and attempted to contact the most
senior executive we could identify with oversight of the investment management process. In the survey
we requested both quantitative and qualitative information about their business and views regarding
the broader industry.
With about 60 industry respondents, our survey contained a significant amount of quantitative data that
allowed us to better classify various roles within the industry by factors such as location, compensation,
and assets under management. Although the responses were gleaned from a limited number of
institutions, we believe the resulting data are representative of the broader industry within North
Carolina. For example, Figure 1 shows the geographic distribution of survey respondents in major areas
of North Carolina. As expected, the results indicate that most firms are concentrated in Charlotte and
the Triangle (Raleigh Durham, and Chapel Hill metro area). Figure 2 shows the distribution of firm type
with by far the largest group self?identifying as Registered Investment Advisors and not another firm
type. These are largely firms that focus on personal wealth management and we subsequently refer to
them as such.
Figure 1: Respondent Location Figure 2: Respondent Type
Other includes Hickory, Wilmington, Greenville and Davidson
We surveyed firms on average annual compensation for investment professionals and report in Table 4
the medians for major geographic areas. Unsurprisingly, Charlotte and the Triangle lead in
compensation. Firms located in the Triad and Asheville report slightly lower compensation.
18
6 18
6
6
Triangle
Triad
Charlotte
Asheville
Other
40
1
7
1
2
1
1
11
RIA
Hedge Fund
Private Equity
Fund of Funds
Venture Capital
Business Development Co
Broker Dealer
Real Estate Fund/REIT
Commercial Bank
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Table 4: Average Firm Compensation by Location
(Based on medians of survey range midpoints)
Location Average annual compensation
Triangle $150,000
Triad $125,000
Charlotte $150,000
Asheville $125,000
Other $87,500
Table 5 reports firm characteristics by firm type. Institutional firms tend to have more employees,
higher compensation, and more assets under management than personal wealth management firms.
Respondents that classified their business as a Hedge Fund or Venture Capital firm reported the highest
average annual income, followed by Business Development Companies and broader Private Equity
(results not tabled). While ranking towards the bottom in terms of compensation, Broker Dealers and
Commercial Banks employ, on average, more people than their higher?salaried counterparts in Venture
Capital and Private Equity (results not tabled).
Table 5: Other Characteristics by Firm Type
(Based on survey range midpoints)
Average Number
of Employees
Median
Compensation
Median AUM
($ millions)
Personal Wealth Management 10 $125,000 $500
Institutional Buy?Side Firms 29 $175,000 $750
We also note that the majority of firms responding to the survey managed between $100 and $499
million in assets. This is consistent with the payroll data provided in the first section which showed a
large number of small firms and is likely related to the high number of personal wealth management
firms (most of which have a client base with lower levels of investible wealth).
Businesses in the NC investment management industry are unequivocally positive about future growth
prospects. 100% of respondents expect to grow the number of investment professionals employed at
their firm’s over the next three years. In addition, 98% of firm’s expect to grow the number of other
employees.
The qualitative portion of our survey focused on why investment management organizations choose to
operate in North Carolina and what would contribute to business expansion. The results provide some
expected finding as well as less anticipated insights. When asked what incentivizes their organization to
operate in North Carolina, the most common answer was simply that they had already been a resident
or established the business in the state. Other than the fact that businesses already reside in North
Carolina, little appears to be keeping firms in the state. In particular, the second most common
response, cited by 28% of respondents, relates to the perceived high quality of life in the state. About
20% of respondents noted the strong state university system and the talent pool available to firms as a
reason for locating in North Carolina. Just 6% of respondents stated advantageous tax structures as
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their reason for locating in the state and another 6% specifically stated that taxes in the state were a
disadvantage with one respondent actually noting that high NC taxes had led the firm to investigate
moving to Tennessee.
We report here a selection of representative responses to the first open?ended survey question, “As
compared to other states, what incentivizes your organization to operate in North Carolina?”
“Diverse economy, growing population of affluent families and business owners”
“Partners are residents. Universities are sources of investors. Large, established medical
community.”
“NC provides high quality of life. Sophisticated transit hubs, financial and cultural
centers, intellectual and academic centers at an economic value superior to NE corridor
or West Coast.”
“Universities and access to reasonable talent pool, quality of life, good airport.”
When asked what would incentivize business expansion within the state, by far the most common reply
(provided by 70% of respondents) was some form of lower taxes. Respondents cited specific concerns
related to possible moves to include professional services, investment advisory and financial planning
fees in the sales tax base. Several respondents suggest a role for the State expanding initiatives to seed
new firms in NC. We report here a selection of representative responses to the second open?ended
survey question, “What potential state and local policy actions would make it more likely for you to
expand your business in North Carolina?”
“Our tax rates and our debt per capita look a lot more like California, Illinois and
Massachusetts than like the southern states we compete with in Alabama, Georgia and
Virginia. Stop building infrastructure. Our infrastructure is generally fine, and at least
good enough for now. Save the money and retire some debt.”
“Investment management companies with