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It is a sign of how complex the financial world has become that when you get a sharp uptick in the market, as we have seen this week, it is bad news for so many of the players.
The main casualties are, of course, the hedge funds particularly the long/short funds like Tosca. They are trapped with big lossmaking positions in mid- and smaller caps, but they can't give up and get out because there is no liquidity.
Being trapped on the long side, they have been trying to make ends meet by going short of the FTSE 100. That means that days like Monday, when the index jumped 5%, really do make their eyes water and their clients and prime brokers even more restive.
Interestingly, most traditional asset managers think shares are getting to the levels where they are cheap. This would have been the time when the likes of Tony Dye of PDFM, Leonard Licht of Mercury and Fidelity's Anthony Bolton would have begun sniffing around the many traditional businesses now to be found at very depressed prices indeed the now semi-retired Bolton recently said as much. But today's institutional managers even those with cash are scared of the volatility in FTSE 100 stocks and don't fancy the mid-caps, though there is value there, because they know the hedge funds are gagging to sell.
That means the turning-point in the bear market this time round is unlikely to be marked by a Fidelity or Schroders emerging with big stakes in unfashionable stocks, or a private equity house like Permira doing some bottom-fishing. It is more likely that those who have cash Warren Buffett, Jupiter, Invesco, Wilbur Ross will step forward to put the Mayfair set out of their misery. At some point they will take out whole hedge-fund portfolios, so the latter can quietly fold up their tents.
Most hedge funds are still reluctant to admit that two-thirds of them will go out of business and you can't really blame them for that and won't yet talk to their rescuers. Until they do, the lethal combination of volatility and downward drift is likely to continue.
Snow's big bet starts to pay off
Evolution Group's Alec Snow saw the downturn coming before most of his peers in stockbroking.
His key moves, almost two years ago, were to place a big bet on asset management, with the acquisition of Williams de Broë, and at the same time to see off some activist investors who were trying to get him to run down the group's buffer of cash.
The investment management business gave him a steady income stream even in troubled times. The cash also gave him the flexibility yesterday to buy the investment management business of Singer & Friedlander in administration because of the problems of its parent, the Icelandic bank Kaupthing.
The way the deal has been structured, it looks like he will get the pick of the people and the assets under management, but avoid overhead duplication. It should do a lot for revenues but not add too much to costs.
The success of such deals ultimately hinges on the retention rate of clients, and whether they like the new arrangements. But in the meantime Snow has put down a marker.
Business in that part of the securities industry which specialises in mid-market and Aim stocks is truly dire, and is likely to stay that way for some time to come. A shake-out is inevitable either with key teams deserting to join stronger rivals, or with whole firms getting together to reduce overhead and pool clients.
These deals never happen as smoothly or as quickly as they should largely because of the larger-than-life egos involved but they do happen in the end, and when they do Evolution has shown clearly that it it likely to be a consolidator rather than a target.
