The global economic outlook for 2023 is cautiously optimistic, presenting an opportunity for investment banks to take bold steps and prepare for stronger business cycles. Now is the time to invest in research and analysis practices to counter economic pressures and implement a sustainable delivery model that balances in-depth quality research with cost-effectiveness.
Based on a survey of global chief economists, the World Economic Forum (WEF) Outlook for 2023 finds that economies of the world will experience variable growth. Most chief economists expect moderate to strong growth in the Middle East, North Africa and South Asia, while more than nine out of 10 think growth will be weak in the US and Europe.
However, there are positive indicators in the US market, with analysts forecasting a soft landing and even pegging the probability of a recession at just 35 percent. Other positive indicators include a steady increase in disposable income by approximately 3-3.5 percent, buoyed by decreased inflation trending towards the Federal Reserve’s target of 2 percent. Analysts are also optimistic that the drag on growth due to financial tightening is peaking and will diminish as we move through the year.
The deal volume in 2022 was down significantly, by 19 percent, driven by a marked slowdown in mergers and acquisitions activity in the US. With 853 deals completed globally, compared with 1,047 deals in 2021, what does this portend for investment banking and Private Equity (PE) funds?
Navigating uncertainty will not be easy, and dealmakers must tread carefully. Chief economists from the WEF survey largely expect businesses to combat potential economic headwinds during 2023 via strategic cost reduction – by cutting operational expenditure (86 percent) and laying off workers (78 percent) and optimizing supply chains (77 percent). This has already begun with banks downsizing their labor force. The changing course foreshadows a shift to a more collaborative ecosystem, where lean companies source talent and access capabilities via agile partnerships.
Best-in-class investment banks and PE firms are partnering with expert research and analysis providers to tap market intelligence, independent inputs and industry expertise. Such collaboration bolsters capabilities and offers distinct advantages while raising the game.
Strategic partners work as an extension of the investment banking teams. They put skin in the game and focus on winning mandates for the firms. The best external research providers also distinguish deliverables from qualitative inputs. Working across all vertical and product teams, they build data repositories, invest in sophisticated data-modeling tools, shorten delivery time and exceed expectations in meeting deadlines. Investment banks are already tapping into this high-quality talent pool to gain unique, strategic insights.
The global delivery capabilities of research partners empower investment banks to design a smart sourcing strategy that ‘follows the sun,’ lowers costs and accesses a high-quality talent pool on par with onshore investment analysts and associates. A hallmark of intelligent sourcing is that it is flexible and enables firms to scale capabilities as needs expand.
Investment banks must ensure that their research partners bring governance, risk and compliance capabilities into the equation. Providers that do not adhere to standardized systems and processes can compromise sensitive information, jeopardize deals and cause loss to the business. Established partners adhere to information security standards and have security certifications and rigorous monitoring systems.
Quantitative data freely available in the market becomes a competitive advantage only when combined with smart thinking, detailed analysis and insightful research. The value proposition of external research partners includes inherent benefits such as high-quality research and innovative analysis to distinguish efforts and win client mandates.
This is not just a differentiator but a regulatory requirement emphasizing more due diligence, better record-keeping and high-quality research for investment banks. Research partners leveraging advanced intelligent technologies are helping investment banks to outperform by extracting insights from the noise while enabling them to meet regulatory imperatives.
To know how WNS has been a partner of choice in helping investment banks with research capabilities, click here.
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Banking & Financial Services
16 November 2023
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