Massive upheaval on wall street will have major and lasting impact on the investment management business
Although asset managers have remained relatively unscathed by the turmoil that has rocked their sell-side peers, new research from TowerGroup finds that the unprecedented restructuring underway on Wall Street will have major and lasting impact on the investment management business.
TowerGroup believes the apparent demise of the independent brokerage model will force investment management firms to carefully reassess their reliance on Wall Street brokerage firms for research, trade execution, market insight, and back-office services. They must also prepare for the possibility of doing without traditional service levels. TowerGroup developed the graphic illustrating the eight ways that the current Wall Street upheaval will impact the buy side - from less capital commitment from Wall Street to a decline in the extent and quality of execution services.
"Brokerage firms play a vital role in the smooth functioning of the overall financial system, providing liquidity, making markets, and assuming risk," said Dushyant Shahrawat, a senior research director in the TowerGroup Investment Management practice and author of the report. "These functions become particularly critical during periods of market uncertainty. So this colossal upheaval raises scores of questions for asset managers, both in the short term and looking ahead to 2009. Who will provide capital in times of need? Who will be confident enough in their risk models to assume risk for clients and counterparties? Who will fuel the underwriting of new companies and even new industries? Who will drive the growth of structured finance?"
TowerGroup believes recent changes in the brokerage industry will have both direct and indirect implications for the IT budgets at asset management firms. TowerGroup anticipates a decline of three to four percent in technology spending across the investment management industry in 2008 and 2009, as firms are forced to cutback expenditure amid declining assets under management and growing pressure on fees.
The new TowerGroup ViewPoint, titled "How the Massive Upheaval on Wall Street Will Impact the Investment Management Business," examines the impact that the massive changes to the independent brokerage model will have on the investment management business across the myriad services that the Street provides to managers. The research also analyzes the impact expected on IT spending at asset management firms.
(This is TowerGroup press release dated September 23, 2008)
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