January 2015: The End of Our World as We Know It

Our universe is shrinking, of that there is little doubt. Okay, so the physical universe as we know it is still expanding, if the planet’s leading astrophysicists are to be believed.

However, in this instance, I am referring to the capital markets, not the cosmos. The way I see it, the capital markets universe is made up of the sum total of organizations operating in the global financial services industry, the total number of people working in those organizations, and the technology vendors and service providers serving the sector. To that mix you can add the industry’s various regulatory bodies and government agencies, and you’ve pretty much arrived at what I would define as “our” universe.

As with any of the past 14 years I have been covering this industry, 2014 witnessed the birth of a number of start-ups. But it also saw the demise of other firms, resulting from organizations shutting up shop and a number of significant mergers and acquisitions, which, in the final analysis, far outweighed the new entrants in terms of scale.

One need look no further than SS&C’s recent acquisition of DST Global Solutions—which brings to three the number of noteworthy acquisitions the Windsor, Conn.-based vendor has made in this space in recent years, after its acquisition of GlobeOp Financial Services in June 2012 and Portia, the one-time jewel in the Thomson Financial crown, a month earlier—as an example of this numerical shrinkage.

Measured another way, one just has to consider the tens of thousands of jobs lost in the chaos and uncertainty of the global financial crisis of 2008—roles that were never re-filled once the dust had settled, and were therefore lost forever—to get a feel for the scale and pervasiveness of the contraction. The knock-on effect of this shrinkage is that fewer people are now being relied on to do more in order to make up for the loss of headcount, which, from a technology perspective, is good news.

But technology firms themselves also felt the effects of the crisis and reacted, predictably, by shedding staff. Again, that’s not an altogether bad thing—there’s a lot to be said for a lean and mean environment in terms of how it brings out the best in individuals and organizations, and how it’s often a catalyst that helps the cream rise to the top.

There is, however, one aspect of the capital markets that has bucked this trend: While the number of asset managers has unquestionably fallen from the high water mark of 2006, the total assets under management placed with the industry’s largest players has swelled appreciably. Let’s call this the “capital paradox,” a phenomenon that will continue indefinitely, irrespective of how much our universe continues to shrink.