I remember an old spy book from the 1960s that said “if you notice someone once, it’s chance; if you notice them twice, it’s a coincidence; but if you notice them three times, they’re following you”.  So, remembering that type of “pattern recognition”, when I was in New York last week I was interested to come across two situations where major financial institutions are making plans to move away from specific technology providers in order to de-risk their own use of IT for trading.  The reason that they gave was that those two technology providers have been bought up by private equity/venture capital firms.  And then a little lightbulb went on – because I quickly recognised not just three but at least four trading technology providers that are currently in a similar situation.

Having worked with the venture capital industry in the USA and Europe in the 1990s, one thing that I Iearned from that sector was that before a private equity firm invests in anything, it first plans its exit.  The intention is generally not to be a long-term investor but to increase the value of the investment and then to sell it on to someone else (preferably via an IPO to get the best price for it). [Read more...]