In the past, large money center banks dominated capital markets activities, specifically originating equity or debt for client corporations. Often the assets originated were liquid and with standard terms. The business was cyclical as corporations tend to press pause during periods of volatility and uncertainty.
Moelis and Company is a pure play M&A advisory shop, albeit with a new capital markets practice. M&A advisory is also cyclical along with capital markets for the same reasons. However, the bedrock of M&A and capital markets is changing in a way that may be shifting the cyclicality of these businesses. As should be no surprise, my close watch of asset managers has presided over a dramatic jump in assets under management by alternative asset managers. Blackstone alone grew AUM circa 41% in the past 12 months (and circla 20% the prior year) despite being the largest player. Additionally, it’s well known that alternative asset managers tend to be active in all parts of the cycle, contrary to how corporates behave.
Ken Moelis outlined how he has a now growing capital markets business despite no traditional bank infrastructure in research, trading, or sales – enabled by financial sponsors:
Furthermore, financial sponsors are eating up M&A capacity among firms like Moelis:
And last, financial sponsors are dis-intermediating the bank lending market:
The plumbing beneath financial markets is always changing, and in this case, it appears that influence for now is drifting away from money center banks and towards financial sponsors.
Disclosure: We own shares in MC, this is not investment advice. Do your own work.