Over the last few weeks, I’ve had several conversations with people who believe the world will ‘go back to normal soon’ because there are some positive developments – such as promising vaccines, which are being actively rolled out. They’re planning office re-openings, return dates, intern programs, and even for a few, trips to see clients. It made me think about what ‘normal’ is going to be once the dust settles – and why it might not be what ‘normal’ once was (insert the super overused “new normal” here).
When people wonder about the world going back to normal, what they usually mean is “when it goes back to how it was before all this.” In capital markets, my thinking is that may never happen. There are so many vectors to discuss around this topic, and it’s hard without writing 100 pages, so I’ll try to keep it to what I think my unique lens is: communication structures.
There has been a lot that characterized capital markets: long rows of desks sitting shoulder to shoulder, high energy trading floors, expensive restaurants, lots of travelling, conferences, hub cities like London and NYC, and of course, early mornings.
There have been three major forms of communication: verbal (phone and in person), synchronous (chat and video), asynchronous (email).
For the sell side, I do genuinely believe that there will be a big push to return to the pre-COVID normal for many firms, especially within the front office. There certainly are collaboration benefits to having everyone in one big room – but there also seems to be another big concern around performance management, i.e. knowing that everyone is actually working. The trading floor is no stranger to distractions (especially around 12pm on a slow day), but at least with everyone in the office, managers know when those times are. With everyone working remote, it becomes much harder to track who is being effective. For the middle and back office, there may be the ability to work remotely, at least part of the time, but I believe long term the front office will be a strong center of gravity, and will eventually pull everyone back in.
For the sell side, I think we get back to 80-90% of what life was like pre-COVID.
For the buy side, I believe it will be quite the opposite. Yes, there are also benefits to working in person, but on the buy side, the teams are much smaller, which makes digital collaboration much easier (think about having a zoom meeting with 3 people vs. with 30 people). Additionally, I think the degree to which locations have fragmented over the last twelve months is hard to appreciate. The buy side is living all over the place, with many moving to locations like Miami, with the promise of better weather, lower taxes, and a better quality of life. For the buy side, working remotely is much easier too as they have an easier time getting new tools and technologies approved, which allows them to further adapt to a remote working environment. Additionally, performance is much easier to measure, so the benefit of having people in office vs. not in office is kind of a non sequitur – you live and die on your fund’s performance, and it’s pretty straightforward from there. That means that saving time on travelling, flying, coming and going from hotels is time that can be reinvested into the process and performance, which may mean that remote funds benefit from a competitive advantage in that regard – less time on logistics, more time on analysis.
The final benefit of being remote is, for better or worse, multi-tasking. By having two monitors, you can be sitting on a video call on one monitor, and checking your email on the other. You can come and go from the call as you see fit, and get way more done.
For the buy side, I think we get back to 50% of what life was like pre-COVID, at best.
There’s also one other item that isn’t getting much discussion/acknowledgement: while the sell side may be pushing for a return to office, the buy side isn’t pushing for the sell side to visit their office. Even if offices reopen in the next six months, it’s going to be quite a bit of time before someone wants you to go to the airport, board a plane, visit a hotel, visit a bunch of other offices, then come visit them.
So, if the buy side is pushing the remote agenda, what are the knock on effects for the industry? After all, they are the client. My feeling is that there will be a few areas:
Conferences/events: the majority of conferences go virtual, with only the top conferences having the engagement/support to be physical. Even for the conferences that go for a physical setup, there will be robust digital support/tools – something like an 80/20 split between virtual first vs. physical first long term.
Roadshows: the majority of cities don’t get an in person visit – instead, there are physical meetings at crucial cities, with the rest of the audience having a virtual experience. Likely similar to the 80/20 split for conferences.
New tools emerge to handle the virtual catalogue: with so many virtual events, calls, meetings, and other to-be-thought-up events, there will likely be new tools that emerge to handle the logistics, sourcing, library, entitlement, and awareness of these events.
Coordinating whos ‘in town’ becomes more challenging: with people relocating more frequently (and to a wider pool of locations), figuring out whos where for events, dinners, and any other in person activity will becoming much more challenging for anyone in a client facing role
Client meetings become virtual first: this might be the biggest change for the industry, but I foresee the ‘virtual first’ assumption becoming widespread, to the point where any physical meeting becomes something you have to make explicit/request (“how about I actually come by your office this time, and we can go for a walk?” etc.)
It’s going to be weird at first. Imagine all the desks on the trading floor getting fit with webcams – it’s going to happen. I remember my days on the trading floor when people who chose to wear a headset rather than using a traditional phone would get quietly made fun of – that is all going to change. Imagine walking down a trading floor, seeing salesperson after salesperson on video calls with their clients – it’s going to happen – and it’s going to be weird.
So, to bring it all back to the start, what is going to change around communication?
In-person communication is going to drop dramatically
Chat will dominate as the synchronous form of communication
Video and voice will grow, especially around events/virtual meetings
Email usage will maintain its elevated levels, or grow
This is one area we’re seeing change first hand, and it’s our area of expertise. I don’t think there is a company more focused on email, with a bigger footprint, anywhere in the industry. With everyone moving to different cities, different time zones, and now being able to structure their own day (vs. working during the day primarily), asynchronous communication has taken off dramatically. You don’t know when someone is ‘at their desk’ anymore, so email is the perfect medium. As someone once said to me “email is a to-do list that someone else sets for you.” That has never been more true.
Finally, how should firms be thinking about responding to these changes? Simple – reallocate expenses to where they make sense. Purchase great digital tools for your team – better webcams, better headsets (with background noise cancelling – yes, it’s a thing), and better software. Adjust your travel cost expectations way down – and more importantly, understand the true cost of travelling vs. doing something virtually. Build a tool kit so that you can scale your firm’s approach to virtual events with a digital tech stack (vs. rebuilding every time). Think about new ways to equip your teams in a virtual first world.
As a closing story, we actually had a client recently take their Street Contxt license cost out of their “T&E” (travel and entertainment) budget – and I couldn’t agree more. Steak dinners are still a ways away. The world is going to be virtual first for a long time, and in some areas, potentially forever. Adjust as soon as you can.
And before anyone gets to the “oh, but you can’t build real relationships virtually – you need to meet in person and stare into the whites of someone’s eyes” – you’re right. Virtual will never be as good, but it will be very close to as good, with a ton of other benefits – which will likely tip the scales in favour of it. Yes, you may still want to meet people face to face, especially for high value/high risk engagements, but for the most part, virtual will do.
As always, we’re always here if you have any questions – and we’re happy to chat virtually (it’s much quicker than flying for an in-person meeting!)
Upward and onward,