It seems just the other day that maxim ‘doing more with less' was on everyone's lips. That applied to vendor organizations and end-users alike: both were looking to increase the value they offered their core clients by extending their services on offer, while at the same time doing so with significantly reduced headcounts. That was approximately two years ago as the industry emerged inexorably from the worst market downturn in living memory.
Now, with the 2008 thankfully in the rearview mirror, we're about to enter another period where there is almost as much uncertainty. Everyone I've spoken to recently has indicated this uncertainty in one way or another - obviously buy-and sell-side firms' perceptions are shaped by the idiosyncrasies of their respective core businesses, as are the various perceptions from the vendor community, determined by the constituencies they serve. There is, however, a universal knock-on effect resulting from this uncertainty: it has led to an industry-wide ‘wait and see' stance, the first theme that I believe will dominate for at least the first six months of 2011.
There are various factors in play here: the dire US debt scenario - both on a national and a state level - will weigh heavy on investors' minds. Inflows to the buy side will by and large be modest, especially in the alternative space, which means that for the foreseeable future, buy-side firms will be managing much the same in terms of the size of their asset pools as they did during 2010. And given expectations that returns in traditional markets - that is the say equities - will continue to be average at best, the outlook for the immediate future looks pretty bleak.
All market participants, including vendors, will continue their efficiency drive, but this should be seen as a good thing, akin to the ‘new normal', where the excesses of the past have been jettisoned and substituted by new levels of efficiency across the board, in an industry way overdue its leaner and meaner wake up call.
Unless something remarkable happens in the global financial markets, growth for the foreseeable future is going to be modest. Sure, the BRIC countries continue to boom away, but is China's growth with its ballooning chasm between its official and unofficial inflation rates sustainable, I wonder?
All of which means one thing: If you cannot enhance the bottom line through growth, you're going to have to look elsewhere, and where better to start than by improving your operational efficiency? Personally, I think it's an exciting time where the market will reward innovation and nimbleness, qualities toward which all financial services organizations should aspire.
Next time: Regulation
Should regulators take a more active role when it comes to AI oversight, or leave it to the professionals? What will M&A look like in 2018?Subscribe to Weekly Wrap emails