That Wall Street is transforming quickly goes without saying. How will it morph?
Here's an idea from Barron's Michael Santoli:
The upshot is a massive capacity reduction in Wall Street. That won't matter for a while, until the business stabilizes, and returns may never get back to, say, 2006 levels. But before long, the brass at Goldman, Morgan and at a handful of smaller brokerage shops might allow themselves a smile at what the chaos has wrought.
Related to this, the wrenching markets are setting up an endgame for this phase of the hedge-fund boom, which will lead to a painful shakeout (1,000 funds closing?). It turns out -- Guess what? -- that there's not nearly enough "absolute return" to go around to drive incentive fees on a trillion bucks in assets when markets are weak. Everyone has the same software, and the easy trades get crowded an hour after they're discovered.
This will allow the largest elite hedge-fund shops to consolidate and continue morphing into fuller institutions -- true counterweights to the Street.
How to verify such a hypothesis? Look for the professional trajectory of the biggest yesteryear names in investment banking! They either join the Blackstones of the world or go into early retirement. Indeed, can you see these guys working for/under the management of some commercial bank?
