So me and my colleagues were discussing over lunch how things are generally worse off in the industry since its heyday.
Investment Banks face more regulations. Equity research and S&T revenues are dropping (atleast for European banks) Hedge funds and AM are seeing money move to passive funds
The only places growing seem to be PE and/ or FinTech (though very small right now)?
I was wondering what you guys think about the future of the industry as a whole and buy-side/sell-side?
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PE is next... too much dry powder chasing too few deals
Compliance and legal were until 1/20/17
M&A advisory, despite regulatory constraints and shifting economics. When I was at a BB, my boutique firm counterparts were absolutely crushing it.
There will always be a supply of businesses for sale, and a demand to buy them. Whether they are good or bad transactions does not matter. M&A advisory is a profession that is almost always a necessity (in the case of public company transactions) and a highly value-add service for private companies unable to maneuver within the sponsor/strategic landscape.
It is also a profession that takes years of development, so there are high barriers to entry (no one can just become an astute advisor). Beyond financial modelling, advisory requires stamina, strong intuition and negotiation skills that can only be learned through a decade of experience.
Wouldn't that make it have high barriers to entry if it's difficult to enter a market?
Secondary PE has awesome macro trends:
The great irony is that many of the best banking analysts went to primary private equity, and less desired ones into secondaries, but it seems secondary PE is a much riper (and growing) field. Primary private equity today is extremely crowded from both a capital and personnel standpoint.
AM/Wealth management. No matter what happens, there will still be wealthy people who need their assets managed.
Don't know about S&T going forward. Technology would scare me in that space, just given the automation trends.
somewhat agree, somewhat disagree. yes, these fields will still be lucrative, but the question is are they growing? I firmly believe that wealth management is not growing because of robo advisors, regulation, and the move to passive.
So this is where things get dicey. Caveat, I'm biased because I work in Alternatives.
I don't buy this entire move to passive taking over active management. Yes, when vol is suppressed for years by CB's, buying the index looks like a genius call. When vol comes back, I think active management comes back in a meaningful way. I welcome the shutdown of funds recently, as its clearing out under performers, so to speak.
Venture, especially venture in Asia is growing quite nicely.
Given that I work for a firm currently raising a new fund, we're kind of hoping that dollars invested (and therefore valuations) go down even more in the near future, but it seems to be picking up again. Seems like a good time to be an entrepreneur as well, access to capital is still abundant for quality founders & startups.
Layoff optimization software.
The era of highly capable single family offices is still just beginning. You think there are a good bunch now but the generation shift of the 1980's PE Fund founders is not over. Many of these men are still in their mid-60's. A number of the $200M+ net worth PE founders are just building out their own family offices right now. And it makes sense too - they are highly flexible, can move fast and while institutional LPs are forcing fund managers to focus on specific strategies and capital structure plays in order to raise funds (i.e. - strict middle market 51%+ LBOs in vertical market software), family offices can take LP stakes in those funds, co-invest along side them and compete against them all at the same time.
Surprised that private debt hasn't been brought up yet. Direct lending has been a huge area of growth due to bank regulatory pressures, and the space continues to develop as an attractive asset class for institutional investors. It seems like there is a new direct lender starting up every day (though that may be a bad thing when the cycle turns).
Lending in the middle market still requires a lot of expertise, and it isn't really an easy asset class to automate due to the private nature of the companies, expertise required to understand middle market borrowers, and relatively unsophisticated borrowers.
The lower middle market ($10MM EBITDA) has a lot of room to run, though risk for lenders in that space is typically much greater.