Eight Ways the Wall Street Upheaval Will Impact the Buy Side

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.

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.

Eight Ways the Wall Street Upheaval Will Impact the Buy Side

1. Less Capital Commitment From Wall Street
2. Disruption in the provision of execution services
3. Changes in Securities lending services
4. Greater focus on risk management
5. Decreased buy side appetite for structured products
6. Shift in order flow from dark pools to crossing networks
7. Buy side opportunity to hire top Wall Street talent
8. Elevated positions of second-tier brokers, independent EMS and OMS providers

"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.