From the desk of Roy Zimmerhansl
Practice Lead, Pierpoint Financial
December and January are the times when we see all kinds of prognostications from individuals and their firms. They reflect on the past year's facts and results and consider the trends that will shape the next twelve months. These are typically macro issues, and at Pierpoint, we have done it ourselves through podcasts, Livestreams, and blog posts.
In this post, I will reveal what 2021 will be like and I guarantee that my prediction will be accurate. But first, let me reflect on some news items that seem on the surface contradictory. Both DataLend (down 11.6% on 2019) and IHS Markit (down 7.4%) announced that 2020 revenues were down for the industry. It is hardly surprising when one considers the precipitous market drop in the spring, followed by short selling bans in a number of countries, including South Korea, a very profitable market that will remain in place until March. Additionally, the shocking rebound in markets generally has resulted in market shorting for index hedging and less on specials, so while balances appear healthy, revenue run-rates don't.
Yet despite this, we were given updates by Northern Trust and Bank of New York Mellon both showing revenue increases last year ahead of 2019. As an aside, there are only a handful of agent lenders that produce separate figures for their securities finance businesses, and these are two firms that have been reporting quarterly figures for more than 15 years. (Before July 2007 there was one additional agent – Mellon Bank which merged with Bank of New York on July 1 2007). No doubt, there are several reasons for their outperformance against their peers, but that isn't the focus of this post. Instead, my expectation is that both NT and BNYM kept doing the 'good things' they were doing in 2019, tweaking those to improve margins and adding 'new' aspects and clients to their businesses resulting in an improved bottom line. Despite the ready-made explanations of SFTR implementation in Europe; COVID-19; the market crash and recovery; and the miserable interest rate environment, both firms found ways to prosper.
At the industry level figures are down, and with two of the largest firms outperforming, the remaining crowd of agents must have had a challenge last year. This year, who knows – will there be another correction after the incredible recovery in stock market prices, running well ahead of corporate profit outlooks; the challenges facing short-sellers which I recently chronicled; a continued low-interest-rate outlook; and of course, the potential impact of new strains of COVID-19.
From Macro to Individual
Yet this is a business made up of people, and I will focus on that before finally turning to my prediction … I know you're excited to read the guaranteed-lock announcement, so I'll get there in a minute.
The people side of the business has outperformed this year demonstrating adaptability, flexibility and resilience. In 2020 I took the time to do more reflection, read more, watched and listened to numerous motivational speakers, added meditation to my day and did more formal learning than I have in decades.
One of the people leaving a strong and lasting impact on me is Jim Rohn an American entrepreneur, businessman and motivational speaker who passed away at the end of 2009. His messages are simple, straightforward and as relevant today as when he was giving them in person for over forty years. You can hear his words on YouTube as there are dedicated videos of his speeches and snippets that frequently pop up on motivational compilations.
I want to share with you one message he often referred to, gifted to him by his mentor John Schoaff:
"Learn to work harder on yourself than you do on your job. If you work hard on your job you can make a living, but if you work hard on yourself, you'll make a fortune."
How do you do that in securities finance – make yourself better each and every day? The work from home switch last year presented people with the opportunity to attend virtual webinars, take courses and participate in an endless stream of zoom/equivalent calls. Where do they go from here – the 2021 version of those same events? Sure, there is value in attending and participating in those, but is any of it transformational, are the topics those that answer the questions of individuals in the business and have panelists and speakers suddenly started revealing trade secrets and insiders' tips in full public view? If they did, I missed those, and although I am pretty frank when speaking myself, there is a limit as to what is revealed 'onstage'.
Last year allowed me to think about how to promote the advancement of the people in this business. I was lucky in my career because the securities business had experienced an explosion of activity since 1980 when I arrived at the Canadian Depository for Securities. Check out the graph below showing the more than 10-fold growth in stock market capitalisation from 1980-2012; consider that according to Visual Capitalist the figure was $89.5 trillion USD in APRIL last year and markets have risen dramatically since then, and you can imagine that many people, including me, have benefitted from this unprecedented growth.
Pierpoint Alpha Community
Growing up in this business, I had access to people that created the infrastructures that shape our market today, people that have retired, passed away, been victims of outsourcing/downsizing, became too senior (read 'expensive') or moved into related or unrelated businesses. The global, dispersed operating environment we are part of today makes the industry more resilient, but also more remote. Despite the size and scale of the business and the companies in it, the undoubtedly massive pool of data and information, for the individual, it's harder to access than ever before. That is not a recipe for success at the individual level.
What I came up with is the Pierpoint Alpha Community - a membership site dedicated to enabling people to invest in themselves, improve skills, knowledge, understanding and connections that is not available at work or in any other location I'm aware of.
Access to information, experts and peers
Knowledge delivered live, recorded and continuously available in the library
Community connections and sharing via the Forum
Savings to Courses, Events and Merchandise
Events, both Members-only and public
We used the word ALPHA in the name purposefully – the PAC will create alpha for the individual's career. You can learn more at www.pierpoint.info/pac. Or why not watch our Livestream, and meet just some of the experts involved with the PAC to see what they have to say about it?
Finally, the forecast!
You've waited long enough and well done to you for lasting until now. Using my well-chronicled years in the business in securities finance and custody before that as the basis for the prediction seasoning coming from the breadth of firms I have worked for, sprinkled with running three independent businesses; and baking it with care through my personal research and analysis I can confidently predict that 2021 will be:
Opportunity mixed with difficulty
That is how it has been every year of my life and how I expect it to be in 2021 (SPOILER ALERT: this will be my prediction for next year as well).
You see, every year is both difficult and easy; straightforward and complex, and just as spring follows winter and light follows dark, there is never a year without opportunity or hard times. The questions are: what can we do individually to make it the best year for ourselves and how, as Jim Rohn suggests, can we work harder on ourselves? Those are the questions, the challenge in answering them is that by making it a better year for ourselves, we also make it better for our employers and those we serve.
Take care of yourself first, so that you can take care of everyone else. That's not selfish, that's necessary (it's why they instruct you on planes to put on your air mask before attending to anyone else. Remember plane travel?)