This year, the buy side will be facing a host of changes as the combination of new regulation, technological advances, and geopolitical uncertainties influence the investment landscape. Ryan Van Wagenen of Global Private Equity notes that these changes relate to one another due to the past year’s constant ongoing challenge as a result of low yields. The hunt for more yield has lead many investment managers to think about new and alternative approaches, even exploring unfamiliar territories.
Performance of Global Capital Markets
The global capital markets have now resumed growth after the 2008 and 2009 severe financial crisis. In 2010, global financial stock which includes both debt and equity outstanding was approximately $11 trillion. According to new consensus data, that figure is now closer to $212 trillion. This number was high above the peak level in 2007. The global financial stock’s increase is likely because of the global equity market’s increase in 2009 and 2010. In addition, there has been drastic growth in government debt securities’ over that time period.
The growth of emerging countries’ capital market is likely to stay strong with their long-term fundamentals still looking firm.
However, markets are still upset by the global volatility and uncertainty. These factors are also the industry’s key risks in the years ahead. There are three core types of players in the global capital markets, one of which is the buy-side firms. Buy side investing continues to move forward with new trends that have been built over the past few years. As the growth continues, buy side investing could make 2018 one of the most lucrative years in the business.
Buy Side Trends that Will Affect the Global Financial Markets
Increased Regulatory Pressure
This 2018, buy-side investing‘s asset managers will face significantly increased compliance burden. This will occur with the introduction of Europe’s Market Abuse Regulation, as well as the MiFID II. The impact of these regulations is that firms begin to apply to their jurisdictions the strictest standards. Moreover, the investors of the buy-side investing industry will want proof from firms that they have control and systems that could ensure the detection and prevention of market abuse.
Gatekeepers’ Analysis Will Have More Influence
The last decade showed the buy side firms use consulting firms in auditing their processes, as well as rating investors. Around that time, these firms or gatekeepers provide analysis with a focus on performance as well as classification of financial strategy. Nowadays, however, the industry demands more pervasive transparency. For that, the gatekeeper’s analysis now exerts more impact by being more data-driven and focusing on all aspects of the business.
Out-Sourcing Core Processes and Leveraging Outside Expertise
One of the trends that buy-side firms will be adopting more in 2018 is the outsourcing of the company’s core processes. This, in addition to compliance, back office, and risk processes will help companies become more cost-effective. With digital technology influencing the financial industry, buy side investing will also begin to take advantage of advanced technology. Two examples that many firms are looking to implement are user behavioral analytics and machine learning. Buy-side firms will be utilizing outside expertise as well.
These buy-side investing trends mean that firms need to be more proactive. Main areas to improve are regarding the rules and regulations on trading as well as market manipulation. Automation of processes, especially surveillance, also trends to empower analysts and regulators. Additionally, these processes provide the firm with the advantage of cost-effectiveness as well.
Ryan Van Wagenen on the Typical M&A Process for Global Private Equity
When discussing the typical M&A process, Ryan Van Wagenen quickly explained that there is no standard process and that it really depends upon the sophistication of the seller and those they have hired to run their process. The time frame of the process can last anywhere from a few months to a number of years depending on how rigorous the process.
Basic Overview of the M&A Process
- Dialogue Starts Between the Buyer and the Seller
- Both Parties Strategically Approach the Subject of the Transaction
- Line of Communication Always Kept Open
- Discuss Seller Retention and Possibly Future Exit Plan
- Disclose Financial and Operational Overviews of the Business
- Sign Letter of Intent
- Commence Due Diligence Process
- Closing of the Transaction
Visual Overview of the M&A Process
In addition, below is a great overview of the buy side M&A process by the Wharton Business School. This is a great overview of the process and due diligence that private equity firms such as Global Private Equity go through when looking to close an M&A transaction.
Please Share Your Experience and Feedback with Us
What has your experience been in the M&A buy side process? Please let us know your opinions on the industry. Regardless of which side of the business you are on, please let us know your thoughts. The experience of those on the buy side, sell side, and those interested in the market is helpful. We’ll also answer any questions that are asked below.