Key emerging trends across buy-side firms and their implications on the global capital markets industry

In 2010, recovery in global capital markets was supported by increases in equity market capitalization, government bonds outstanding, and foreign investments. Helped by these industry trends, buy-side firms’ global assets under management reached $56.4 trillion in 2010, surpassing 2007 levels.

However, the regional picture highlights some strong differences, as emerging markets in Latin America and Asia-Pacific were the major contributors for this growth. Though the global buy-side industry’s profitability increased as firms kept operating costs low in 2010, the fear of economic slowdown in 2011 has resurfaced and equity market capitalizations have been extremely volatile. The on-going market volatility is therefore expected to have a significant negative impact on global buy-side firms in the short term, and potentially the medium term.

Despite strong market performance in 2009 and 2010, both individual and institutional investors remained wary of certain asset classes such as European equity products, and increased their demands for transparency and customized solutions. The overall product landscape continued to change, with focus shifting towards emerging market equity-based products and core government bonds. Also, with moderate or even poor growth prospects in developed markets, buy-side firms are focusing on expansion into high-growth emerging markets such as Asia-Pacific and Latin America.