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In 2020, the unprecedented COVID-19 pandemic disrupted global economic activities. Some of the challenges faced by the investment banking sector during the pandemic include: Shift in working arrangements, increased client sophistication, and advanced financial regulations. To secure a profitable future, the industry is likely to face a major turning point in 2021. Focused on reshaping its operational platforms and various business models.
Below are the top investment banking trends to watch in 2021
The second wave of digital transformation
The first wave of digital transformation in investment banking was motivated by the 2008 recession. The crisis pushed many businesses in the industry to invest in technologies that improved customer engagement. Giving rise to online portfolios and mobile applications that majorly focused on facilitating front-office-related services. The COVID-19 pandemic exposed major weaknesses in the consolidation and automation of the digital layers. Particularly affecting mid-and-back-office-related activities.
In 2021, many investment banks envisioning streamlining their operations and moving fast are likely to invest in automation. For instance, leading Investment Banks use Firmex to automate the distribution of data through real-time reporting. Other digital technologies that are likely to be embraced in the industry in 2021 include Artificial Intelligence, blockchain technology, confidential computing, and hybrid cloud computing.
Virtual Initial Public Offers (IPOs)
Pre-pandemic, the pricing of IPOs, roadshows, among other activities would demand the physical presence of a company’s management and potential investors. Despite the challenges brought about by the pandemic. Many companies still understand the significance of raising capital and strengthening their balance sheets. To establish more resilience and flexibility, cut operational costs, and avoid delayed deal-making processes. More companies are expected to adopt virtual roadshow meetings. The virtual processes are projected to take half the time it would cost in-person gatherings to successfully run an IPO. Many offerings in 2020, which were majorly tech or healthcare IPOs already proved the success of remote connections and transactions.
Recovery of the merger and acquisition market
Merger and acquisition (M&A) activities slowed down both in terms of volume and value during the first quarter of 2020. Because of the economic crisis and uncertainties faced in capital markets during the first, second, and third quarters of the year. Most buyers were forced to either cut back or delay acquisition plans. However, since M&A activities started gaining momentum in the fourth quarter of 2020, it is anticipated that the activities level will continue on an upward trend. The deals that were shelved in 2020 as a result of market uncertainties are likely to be finalized in 2021. Additionally, the availability of financing at low-interest rates may foster M&A activities.
A surge in sustainable investing
Sustainable investing is an investing approach governed by a philosophy that evaluates the social, environmental, and governance credit of a given company. According to various research, investing in companies aiming for high financial returns while considering positive environmental and social impacts. Has been gaining more popularity than ever before. Further fueled by the pandemic, more investors in 2021 are likely to consider sustainable and socially responsible investing. That promises higher long-term returns and lower risk.