Compared to previous periods, investors and issuers have way more transparency around the capital formation process. One of the key reasons for that is the role technology has played over the last two years. Technology comes to the fore as our customers think more and more about how they can discover more insights and shared understanding across the workflow, no matter their objective in the capital markets.
Firms are increasingly focused on building out their suite of data and analytics through technology to inform decision-making. This certainly accelerated over the course of the pandemic and continues to ramp up amid recent headwinds in the equity and fixed income markets, the latter underscored by low monthly issuance tallies for higher-grade corporate credit. Data and analytics now feature much more granularity for firms to understand how an investment fits in a portfolio, the risk of potentially investing in an asset, and how that relates to other portions of a portfolio.
How has this shift affected the logistics of dealmaking? Deal execution is a fairly commoditized process, but the ability to analyze how a piece of paper may fit into a portfolio has become much, much more critical. We're increasingly seeing investors move across asset classes and think about how an instrument’s expected return might fit in their portfolio, or if it will give them the appropriate type of risk/return profile in a larger portfolio. While the execution of a deal and its perfunctory tasks are important, the alpha that firms are constantly searching for centers around analytics and portfolio modeling.
A key factor in how capital market deals get done is the fact that the relationship between issuer and investor has changed. Traditionally, that relationship was heavily brokered through the sell-side. While that continues to be the case today, the dialogue between the investor and the issuer has become more profound. Whether it be through the corporate access process that many sell-side and buy-side firms focus on or connecting through other mechanisms that enable investors to pose a reverse inquiry on a particular issuer (regardless of whether a capital formation exercise is taking place), the relationship is now driven by a more collaborative discussion between the investor and the issuer.
Since there is deeper data and context on the finer points of asset risk, we've seen investor appetite for risk in the capital markets drop, which gives the current market climate an air of a buyer's strike. The broader macroeconomic headwinds have helped as well, spurring investors to prioritize value above growth. There is still issuance to be had, but firms know that they have to make a worthwhile bid.
On the flip side, issuers are consistently asking for more knowledge and understanding, as they want to be more involved in the issuance process. The dialogue we've had with our issuer customers has been more robust over the last year and half than it has ever been in my career. The desire to fashion a more detailed, analytical approach to understand the capital formation process has probably been the most profound effect of the pandemic that we’ve seen to the issuer-investor relationship.
Ultimately, deal execution leads back to how an investor sees an investment fitting in their portfolio and what type of instrument issuers wants to issue based on their capital consumption needs. And if you’re on the sell-side, you’re asking yourself both of those questions before issuance. This is where we as an organization can help, as we deliver complementary data and services to help execute and assess deals.
While it’s been a tough year for the markets, I'm encouraged by the dialogue we’ve heard from those involved in the capital markets. Weathering the storm will be an important thing for all of us to get through this year. However, I think the future is bright when you consider the new technology and opportunities available to help us facilitate this process for all stakeholders.
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