What was Old is New Again, Part 1 – Neil DeSena
We at SenaHill Partners have seen change – people, business models all come and go – change remains a constant. We can see where change is needed and when it is coming – we have been on the forefront of change before and will again. It is our job to distinguish trailblazers from trends at an early stage. Our value proposition is just as invested in the tactical day-to-day operation of our portfolio companies as in the long–term strategic outlook and growth. Our perspective and passion make SenaHill Partners unique among investment firms. When I look at how Wall Street today, is perceived and operates, I see a bevy of ideas but a general lack of institutional knowledge of how to navigate the industry – I believe (depending on what sector you are looking at) anywhere between one to three generations of operators; people who have “‘been there and done that” are gone. SenaHill Partners helps fill that void. My first two blog posts will touch on a theme: “What was Old is New Again” and address a few areas, that when I jumped back into the business three years ago, were considered left for dead. I strongly disagreed then, and my point of view today remains unchanged.
Front ends are coming back
I got my start in electronic trading at what is now known as REDI Technologies. I saw Wall Street move from an exclusive model (where the firm needed to own everything including the front end) to inclusive (where firms only wanted to own the execution pipes). The firms got all they could out of these front ends and decided that the ‘overhead’ and value proposition was no longer there. Now enter a new set of players who see the only way to get their intelligence in front of clients and grow their wallet is through – you guessed it — front end trading systems. The acquisition of PortWare by Factset (http://investor.factset.com/investors/news-releases/press-release-details/2015/FactSet-Acquires-Portware-Execution-Management-System-EMS-Provider/default.aspx), just opened up ‘front ends’ to an entirely different group of potential buyers. While the front ends of today are different from those of yesterday and will continue to evolve, I stand behind my statement of three years ago. Eyeballs is what is desired and eyeballs is what you get when you have a front end. When I left Goldman Sachs in 2006, I had worked a total of 21 years on Wall Street, 20 of those for either Spear Leeds & Kellogg or Goldman Sachs. While only 40 years old, I was considered an old guy from a tenure point of view. Well ten years later, I am older and still view what I do today the same as I did when I started in 1985 – a clerk just trying to make it easier and cheaper for a client/user to interact with Wall Street. So while SenaHill Partners is a 2 ½ year old company – the collective group has over 175 years of operating experience and creating technology value. The Merchant Bank model may be old but we put a new twist on it – bringing together a group of innovators who have signed both sides of the check to drive forward the next wave of FinTech innovation. And so as the Wall Street life cycle continues, what was old is now new again.
Clearing dead? Think again!
Another area I feel is on the verge of resurgence is Clearing. The market is full of people saying clearing is dead – capital requirements, Dodd Frank and the Volcker rule. While those are reasons for some firms to exit the space, it is going to create a void, and voids, as the world has taught us, create opportunities. In order for Wall Street to continue to operate a clearing facility – clearing firms will need to exist. Clearing may not be a sexy business, but it is a necessary one. At Spear, Leeds & Kellogg we viewed the clearing firms as the ‘house’. While there were winners and losers on every trade; we would get a little piece each and every time the trade was made. We used to describe it as – “clearing is like picking up pennies in front of a steam roller”. The problem today is that margins are thin. With the advancement in technology, execution revenues continue to decrease. Low interest rate spreads are close to zero and the clearing industry itself has no ability to innovate. We made an investment in the global clearing firm DriveWealth that is trying to introduce the Far East to the US markets. I still believe today that clearing will make a comeback and would not be surprised to see some new players at the table. There will be a new batch of penny pickers coming and they just may know how to avoid getting run over by that steam roller – what was old will become new again.
This does not constitute an offer to sell or the solicitation of an offer to purchase any security, investment product or invest in a specific market. All information herein is for informational purposes only and should not be deemed a recommendation of any kind. No representations or warranties are made as to the accuracy or completeness of the information provided herein.