Given that the only constant is change, news soundbites touting a world in flux are less surprising. However, that does not mean that we turn a blind eye to how demographic, industry and societal shifts may impact various markets. Take the shifts occurring in bulge bracket investment banks. Hiring and popularity are down and retirement seems to be the “in” thing. Combine that with the regulatory burden–which includes large fines and lawsuits–and you have a major squeeze on the industry. If another 2008 comes around, the rebound is likely to be even more anemic. Prognosticators are certainly not predicting the end of investment banking as we know it, but the entire landscape of how deals are sourced, executed and closed is rapidly changing.
Like every other industry, automation is impacting the world of finance. As process tools and data are successfully implemented and integrated, the focus will require less middle layers to assist in winning, pitching and closing deals. Lower-level operatives will be trained to utilize the tools at lower cost. The number of people required to do any individual deal will remain low, but the ability to scale the number of deals with a small, tight-knit team will substantially scale.
Not only will there be a squeeze on the headcount at both bulge-bracket and middle-market shops, I would expect the skills required to run a full deal process will be heavily altered as well. I highly doubt the required skills will be reduced. Contrarily, one would expect the level of expertise to run processes devoid of lower-level grunt labor and dependence on machines will require a new type of deal-maker–one with the knowledge of advanced automation tools and large data sets. In addition, s/he will need to understand new methods of deal sourcing and deal marketing and the metrics associated therewith, including automated outreach, follow-up and analytics.
The investment banker of the future will likely have less analyst and associate-level personnel at her disposal. That means she will have to be smarter, work harder and have the know-how to navigate the mine-field of complex tools available on the market.
We would expect some to postulate the reduction in human capital will bolster margins for investment banks. The opposite is likely true. The elimination of redundancies and overhead and the implementation of better tools will increase efficiency and–like the micro-cap brokers of yesteryear who were upended by digitization–significantly decrease the fees charged by investment banks. The concurrent consolidation in headcount industry-wide will mean that more of the fees will be funneled to fewer deal-makers. I would also expect that as larger banks struggle with their bloated cost structures, larger deals will flow to more boutique and middle-market shops whose tools make them more competitive on a global scale.
Because of what we are building, we hope to be a part of the substantial changes occurring in the market. The investment bank of tomorrow will be a far cry from what we have seen in the past.