Changes in the structure of the sector, deferred during the last cycle, are once again accelerating. At the same time, the customer base for capital markets and investment management is becoming increasingly sophisticated and demanding.
Stable earnings result from deepening client relationships and delivering innovative products. However, clients of investment banks continue to demand more access to the balance sheet, creating exposures that make it difficult to extend the relationship further.
This situation creates two imperatives: exploiting structural change to deliver better service to clients at a lower cost; and optimizing the deployment of risk and balance sheet capacity.
Managers of traditional investments continue to drive down their expense base to maximize total return; managers of alternative investments must either focus on executing a niche strategy or developing a portfolio of strategies that will perform well under many economic conditions. Both sets of investment managers must respond to increasingly rigorous compliance and reporting requirements.
The implication is that, for the entire sector, winning requires doing more with fewer but highly valuable people. Sales and trading compensation and hedging costs already account for more than 70% of a typical operation’s costs.
Banks and investment managers must balance the cost of retaining their best producers and portfolio managers with the need to turn a profit across the business cycle. This requires that they understand how customers, producers and market position contribute to profits, and share the value each creates appropriately with each constituency.
At the same time, banks and investment managers will need to make the most of their resources by supporting the business with better task automation, client intelligence, client connectivity and risk allocation. The best support may come from outside the enterprise. For example, investment managers will source operations, market data, analytics and even portfolio management services, to reduce cost and improve investment performance.
PA helps a number of industry sub-segments to respond to these challenges:
- investment banking – we undertake engagements in the areas of debt, equity, treasury and derivatives for investment banks. Our work ranges from the development of product and market strategies through to the installation of client relationship systems, pitch book automation and document management, and banker workstations
- investment management – we assist leading fund management companies in a wide range of assignments including facility relocation, risk management and control, operations improvement, and the design and installation of systems to support fund management operations
- securities sales and trading – we help our clients respond to customer demands for tighter integration between their investment management function and securities distribution operations. PA can help clients to re-engineer their order and transaction management process, implement trading and operations systems, integrate with new industry utilities, and improve the cost-volume-profit characteristics of cash and derivative security operations.
