Monday, June 8, 2009

Shifting Sands for Big Money Boys

Two financial news stories point to rapidly shifting sands in the desert that once was Wall Street. Storied investment banks are no more, their business model in severe jeopardy. Who fill their role in packaging deals for investors? FT reported:

Mutual fund group Fidelity is teaming up with Kohlberg Kravis Roberts, the private equity firm, in an unusual deal that will give Fidelity’s huge retail client base access to future public listings of KKR-owned and underwritten companies.

The exclusive arrangement will give KKR guaranteed retail distribution for its initial public offerings, and will allow Fidelity to offer its brokerage customers an equity investment they might not find elsewhere.

KKR owns almost 50 companies, including Hospital Corp of America, Dollar General, First Data, SunGard, the former TXU, a Texas utility, and Alliance Boots.

There have been virtually no IPOs in the past two years, but as conditions and sentiment improve in the stock market, KKR and its peers are expected to list many of the companies they bought in the boom years.

Reuters reported on another major deal:

Money manager BlackRock Inc, known for working with institutions and governments, could get a lot closer to retail investors as a result of a potential marriage with Barclays Global Investors, or BGI.

For New York-based BlackRock, which built its reputation by offering debt funds to institutional clients, BGI would add $1.5 trillion in new assets, give it access to fast-growing exchange traded funds and attract retail clients.

A deal would also help BlackRock, long popular with big pension funds and endowments, woo retail investors through BGI's hugely popular exchange traded funds, which trade like stocks and are often less expensive than mutual funds.

The financial world undergoes reordering. Who will end up on top? My bet is private equity underwriters (PEU's). The rules keep changing in their favor and any regulation looks to be powder puff.