Investment Banking

Barron's has a cover story -- Future of the Street -- speculating on what might happen to Wall Street as it recovers from its current meltdown. One particular passage caught my eye, mainly because I think you can already see it happening:

The balance of power is shifting toward the large hedge-fund and private-equity shops and away from the sell side. As hedge-fund boutiques grow into full-fledged institutions, they are sourcing more of their own deals, investing directly in issuers and internalizing trading and processing activities that they used to outsource to the Street.

It shouldn't come as a shock if a hedge-fund complex buys an investment bank. At the same time, Street firms will keep buying up and developing hedge funds of their own, if only to tap top talent and stay in the flow of the smart money.

Throw in the fact that Leucadia just took a big stake in Jefferies, and you can see that it's not just the big hedge funds that are picking at the corpse. The end game is probably three or four big investment banks that specialize in only the largest deals. I don't imagine them losing their competitive edge in this arena, I simply think that they've attached another of very profitable businesses to this core, many of which may end up in the hands of others.