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By M. Isi Eromosele
The world of financial services is evolving rapidly. Looking
ahead to the end of the decade the shifting centers of gravity in financial markets
are likely to have a profound impact on the evolution of the financial services
industry.
Building a business with strong foundations in mature
markets allied with a fit-for-purpose emerging markets operating model is
likely to distinguish leaders from followers.
At Oseme Finance, expect rapid evolutionary progress for the
industry. The financial services industry is unlikely to see revolutionary
change over the next four or five years, only because it is highly regulated
and has high barriers to entry.
Furthermore, the regulatory (re-)enforcements in the early
part of this decade such as Sarbanes Oxley, Basel II/Solvency II, International
Financial Reporting Standards amongst many – are likely to have raised the
barriers further to entry.
Nonetheless, the shifting centers of economic and financial
gravity may precipitate some highly significant changes both in the markets
that major financial institutions operate in and the challenges management will
face over the medium-term.
To be sure, the environment going forward is likely to be
shaped by the two major forces of operational efficiency and attention
switching to global markets.
It is clear that the battle for international dominance will
likely be played out between the top-tier of institutions, each of which knows
there may only be a handful of winners. The last five years have seen uneven
growth in both asset and market value terms. European financial institutions
have their fate in their own hands, accounting for nearly two thirds of global
banking assets.
The rise of China has ushered in a new era in global finance
and its trajectory will likely be determined by the opening up of the market under
World Trade Organization (WTO) rules and the IPOs of the big four Chinese
banks.
Secondly, operational efficiency should play an increasingly
important role. The need to streamline processes, eradicate paper, reduce
headcounts and manage related operational risk will affect all parts of the global
financial services industry. The march to reduce the cost-base is already taking hold. In the banking sector, the
cost to income ratio has fallen from the high 60s to the low 60s over the last
five years.
Given the high barriers to entry and tightly regulated
environment, revolutionary changes are unlikely to occur over the next four
years. Yet the evolutionary changes that are already underway should have a
profound effect on financial services markets in every region of the globe.
Market Drivers
The world’s capital markets are seeing their center of
gravity shift toward new types of investments such as PE and hedge funds. Money
is pouring into these new asset classes as investors look for higher returns
than they can obtain from traditional investments such as stocks, bonds and mutual funds.
This shift from traditional to new asset classes – and the
potential imbalances it creates – should significantly reshape the financial
services industry between now and 2015. The impact is likely to go beyond these
asset classes and may ripple out with the potential to profoundly change the
world’s capital markets and its traditional institutions.
Growth of individual hedge funds is expected to slow over
the next three years, but will likely still outpace most other types of funds.
The United States Europe
checked in at 25 percent.
Hedge funds in Asia accounted for
only five percent of the worldwide total, but recently surpassed $100 billion
in total assets and are expected to outpace funds in other regions over the
next few years – in part due to loosening restrictions on short-selling in Taiwan South Korea
M. Isi Eromosele is the President |
Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance
Copyright Control © 2012 Oseme Group
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