The Risks/Rewards of Returning to the Office

Most investment firms say they are planning a “conservative approach” to returning from our current WFH environment. As firms weigh the cost/benefit analysis, they are concluding that there is no need to rush back to the office. As one HR manager explained in simple terms, “The risk in returning outweighs any likely increase in rewards.”

Why is this? Focusing on the “rewards” side of the equation, WFH has gone surprisingly well. Most organizations feel that the past couple of months have proven surprisingly productive. This has been voiced by senior investment teams, whose opinions carry significant weight. The conclusion for many is that the main engine of their businesses has continued to work. Organizations have been able to manage their investments or handle their portfolio companies even in this remote setup. The structural components of the investment business – knowledge workers, technology, data – can function in a way that so many industries have not been able to.

Rushing back to work presents issues on the “risks” side of the equation. Potential health risks to employees and their families is the most significant. Related to this, it seems many employees are reluctant to return, so rushing them would present challenges. Ignoring employee safety concerns might create significant legal liabilities (explored further in section 9). On a practical level, having someone in the office test positive for COVID-19 will inevitably lead to a huge administrative tracing process. A “nightmare” was how one firm described this experience. Others want to minimize the chance of having to conduct such exercises. In summing up this whole risk/reward calculation, a C-level exec explained her viewpoint as “The juice from getting people back early is just not worth the squeeze.”

So how are firms thinking about returning? Although there is an interest to “return to normal,” what we heard a lot of was “We are not looking to be the first back into the office.” One MD described that they plan to be “thoughtful followers.” This conservative approach to returning to the office is translating into an intention to phase back gradually, with delayed return dates, while carefully monitoring to make sure the process is running smoothly.

In working out how to phase, firms are carefully trying to balance business needs with being cognizant and respectful of individual circumstances. Most mentioned that they are identifying key employees (or asking managers to do so), while also looking for employees to return on a voluntary basis once permitted by state and local governments. Who is considered to be essential (by function and level) varies considerably. Most firms have maintained a small core of employees in the office through this period (typically IT, some traders, skeleton representation of office management), but beyond this there are wide ranges of approaches being considered to a phased return. There are no easy or obvious ways to think about this. For example, should hedge funds prioritize “essential employees” like Portfolio Managers for an early return, or delay their return until the end to be most protective of them? (Worth noting: the term “essential employee” often comes up with hedge funds but rarely with private equity and private credit firms, though the implications of this remain unclear.)

Many firms are exhibiting a thoughtful assessment of their businesses on a team-by-team basis, as well as examining how these groups are functioning in a remote environment. Pros and cons of different groups and combinations returning to the office are being evaluated. Some firms are considering dividing up employees to work “shifts.” Having a team A and team B seems simple enough, at first glance, but how to pick teams? With too many variables in play, there are unlikely to be fixed, consistent groups: someone might feel a reluctance to return because they share a household with someone who is immunocompromised, or someone else might be happy to return initially and then feel like they are possibly developing symptoms and ask to stay home. As a result, team A will sometimes look like team A+ or team A-, with the makeup of these teams varying frequently.

In dividing the workforce into groups, people may have different levels of flexibility and a wider range of working hours. Some HR professionals expressed a sensitivity about not creating a visibly different “class” of employee. By offering extended WFH flexibility for one group (say, investment professionals), while not offering that same option to another group (say, admins), this could lead to some awkward conversations. The last thing employees need is to start worrying about how they are being judged on a perceived hierarchy of importance based on a new set of rules.

Specific triggers are being identified that will affect the pattern and timing of a return. Certainly, official guidance is being closely monitored. While firms would ideally aim for a consistent approach across offices, that aspiration is being made more difficult by the need to follow local guidelines on an office-by-office basis. Secondly, the availability of testing, “immunity passports,” contact tracing apps and possible treatments would all clearly impact the return-to-office timeline. Thirdly, it remains unlikely that a large-scale return will take place while there are limited childcare options, particularly through schools and summer camps being closed.

Clearly fixed plans are still in their early stages and continue to rapidly evolve. But if pushed to estimate a specific timeline? Mid/late June has been frequently mentioned as a time “to send the first wave back to the office.” Another way some are thinking about a potential return date is in relative terms, such as “one month after official guidance permits.” The firms looking to re-open their offices most aggressively have plans to return people this month (May 2020). This is typically driven by managing members, often hedge fund founders/PMs, who want to be back in the office and want their teams back as well. This is being pushed mainly in offices where employees drive to work, rather than take public transport. However, even in these cases, the plan is to stagger schedules and have employees return voluntarily. People will not be forced back, simply “permitted back” sooner than at other investment firms. It is too early in the process for firms to focus on convincing reluctant employees to return to the office.

On May 11^th, the New York Governor announced that New York City will stay closed, “unless a miracle happens,” until June at the earliest. In early May, we understand that Morgan Stanley announced to their staff that the first employees would return to their Manhattan headquarters in June, assuming no further setbacks, and from there, it will be a staggered return. Investment banking analysts are supposedly in one of last groups to return. Jes Staley, Head of Barclays, just said that “Big, expensive city offices may be a thing of the past.” Goldman Sachs announced its return to the office plan that includes phases where the current 2% of employees in the office is increased to 20% and then to 50% of employees back in the office. Stopping the plan at 50% seems to indicate there is not yet a scenario being considered where 100% of employees are expected to be back. This is reflective of a wider trend of uncertainty about getting the office back to where it was previously. One bigger driver of this is simply capacity issues (changes to the office environment, discussed in depth in section 7).

As for other specific timelines mentioned by investment firms, the most common prediction we have been hearing is that employees will continue to trickle back over the summer, and that “We probably won’t see anything like the full team back in the office until September.” But describing this as a moving target would be an understatement.