value insights

New Equities Business Opportunities- Valutrics

In the past decade, almost all of the conditions affecting competition
in the equities business have changed and are still changing.
Not the least is the widespread availability of financial information
to brokers and investors alike, so access to information is disap-
pearing as a competitive advantage, as is insider trading. Instead, new
products, new markets, relationships as before, and customized ser-
vices appear as the sources of advantage going forward. Many of these
new offerings are cross-border, cross-product, or cross-functional
in nature.



They are as follows:
• Convertible bonds.Some bonds can be issued at a lower rate if
they are convertible into equity at a later date. This financial instru-
ment can be issued for leveraged buyouts and for mezzanine financ-
ing of venture investment. After they are issued, the convertibles
trade as if they were equities but are still related to bonds.
• Equity derivatives. Originally derivatives were cash derivates
for hedging changes in interest rates and exchange rates. Today with
volatile markets, investors as well as issuers of IPOs and companies
engaging in mergers and acquisitions are interested in buying and
trading equity derivatives in order to manage their risks during the
transition period.
• Global investment product.There has been a general adoption of
portfolio theory. As markets consolidate and globalize, it is now possible
to create portfolios with higher risk-adjusted rates of return. Fund
managers are responding to more open markets and cross-border
investors by creating global funds. The global fund product is the
advice on how to invest $10 billion without any country or sector
bias to achieve the best risk-adjusted rate of return.
• The rise of sectors.With increased globalization, investors are
more interested in investing ideas about telecom or semiconductors
than they are about countries. The investment houses are now cre-
ating sector funds and are seeking sector investing ideas.
• The rise of the hedge funds. As the fund industry consolidates,
many of the top fund managers leave and form their own funds,
usually a hedge fund. These small funds are one of the most rapidly
growing portions of the fund management business. These clients
have different needs from mutual funds. For example, they may
want to borrow against equities that they own. Now some of the
traditional asset management houses are creating their own hedge
funds. The service to these customers is to provide loans, short sales,
custody, and simultaneous buy and sell transactions.
• Portfolio trading solution. Another package of products and
services is portfolio trading. This solution is required when a fund
wants to restructure its portfolio. For example, the Magellan Fund
fired its manager who made a bet on long-term bonds that did not
work out. A new manager with a different philosophy came in and
restructured the portfolio. This transition is a project, which
requires large trades to be executed quickly and discreetly.
A restructuring is a partnership project with the customer. It
means working with them on ideas and then executing them. Global
Investment Bank is in a good position in this business because of
its trading presence around the world. Trades can be executed in the
United States, United Kingdom, Switzerland, Singapore, Australia, and Hong
Kong. Global Investment Bank is one of the three global banks that offer
this solution.
• Using the Internet to distribute research. Currently, fifty-two hundred
clients are on a distribution list, and Global Investment Bank sends the research
as a printed copy and e-mail alerts. Global Investment Bank believes that this
content can be delivered more effectively electronically. It has put
its research on the Web site and is making it more user friendly.
• Leveraging other market segments. In order to serve existing
clients, Global Investment Bank must invest in new information technology
and make itself available on the Internet. It thinks that this enormous
investment and increase in capacity can be leveraged across other
market segments in addition to the institutional client. In fact, it
can leverage its research, products, trading platforms, and settlement
systems across these new markets. It can get significant volumes of
business by leveraging its scale and geographical presence.
Global Investment Bank believes it can serve as the backroom for small banks,
brokerages, private banks, and other intermediaries.
• Foreign stocks. The interest in cross-border investing creates
an opportunity to sell stocks from other countries to domestic in-
vestors. So in large countries, it is possible to sell U.K., Japanese,
U.S., German, and French stocks to local investors who are inter-
ested in diversification.
• Special services to large institutional investors. The investment
funds have been consolidating and entering new markets outside
their home countries. These large global institutions have a unique
set of needs that a large global investment bank can serve.
• Internet banking. Using the Internet, Global Investment Bank could reach
affluent investors in countries where it does not have a retail brokerage
network and whose citizens are becoming equity investors.
Global Investment Bank has responded to every one of these opportunities. It has hired and developed specialists in each of these new product and
market areas. The lead specialist in each area, usually in the New
York or London office, serves as the global product manager for the
area. These product managers become the champion for their product
or market and hire and train sales specialists for countries with
sufficient volume to support specialists. They all report to the global
head of sales and distribution.
The structure is the traditional functional-geographical matrix
with the champions of the new opportunities as product manager
add-ons. In each country, there are the traditional salespeople and
account managers for the large customers. Then there is the explosion
in the number of sales specialists for all of the new opportunities. All of the specialists want to call on the client fund managers.
As a result, the old model of customer interaction cannot work.

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