The Function of Fast
The Function of Fast
January 25, 2010
Last year at this time, hedge funds seemed headed for the hills. The Broad Index maintained by Credit Suisse and Tremont Capital Management of returns achieved by 496 hedge fund finished down 19%.
This year, the Broad Index finished up 18.57%, for all of 2009. About 83 percent of funds finished up and 77 percent of the losses of the previous year had been recovered. And if you count from 1994 to 2009, the annualized return of the S&P 500 was 7.61% with high-low swings averaging 15.5% in any given year. Hedge funds? Annualized returns of 9.3%. Volatility of 7.8%.
Last year at this time, Goldman Sachs was not sure it was immune from the tsunami of financial destruction that had swept Wall Street. It did not get subsumed, like Bear Stearns or Merrill Lynch. It did not disappear, like Lehman Brothers. It did not become a ward of the state, like AIG.
It had just concluded its fourth quarter-and investors found not just that the company could report a net loss in its trading and principal investment activities. It could report no revenue. Actually, "negative" revenue of $4.4 billion.
This year, Goldman is back and booming. Trading and principal investments produced $34.4 billion or three-fourths of the company's overall $45.2 billion in revenue.
Maybe, just maybe, Wall Street is back. The Dow Jones Industrial Average is bumping around above 10,000. But it's been treading water near there since, oh, before the dot.com bust of 2000.
And, if you judge by how much companies are willing to invest in technology as an indicator in their faith in the business of Wall Street, the pain of 2009 is being put in the past.
Aite Group expects capital markets firms will spend $41.6 billion on technology in 2010. That is just shy of the $41.8 billion spent in 2008. By 2012, spending should hit $47.2 billion, it projects. That's a gain of 13 percent in two years. Not shabby.
Celent keeps a different set of books, estimating spending for the securities and investment industries on information technology. It's a little less optimistic. It counted spending in 2008 of $74.7 billion globally, $36.3 billion in North America. And doesn't expect that to get beat until ... 2012, when spending worldwide will hit $79.5 billion, with $36.8 billion in North America.
What's more telling is what the money is being spent on.
According to Aite Group's study, risk management, information security and compliance programs are the top three initiatives for 2010, broadly speaking. Which says, the innovation in-house is just getting things right. Making sure you don't wipe out your capital base. Make sure you don't get hacked by ne'er do-wells or rivals and making sure you play by the rules.
Which is kind of sad. Wall Street should always be about finding the systems and means to fund the formation of new firms and the growth of existing ones. Or making oneself and one's customers wealthier. So they're ready to put more of their money into the strategies and companies your firm is trading in.
Which means ... making systems faster, better and smarter.
To that end, the next three priorities identified by Aite Group are likely to be way more productive. The more return-oriented spending will be on execution management systems, client reporting and market data processing.
