Last night’s terror attack on Manchester Arena was a horrific act of barbarity that struck at the heart of innocence – young adults, teenagers, children and families enjoying a pop concert. The most severe terrorist attack on British soil since the London tube and bus bombings of 2005 was a chilling reminder that indiscriminate terror can strike anywhere people gather – not just at iconic landmarks. Our deepest sympathies to the victims and their family members, as well as the people of Manchester.
In the wake of similar attacks in Istanbul, Paris and Nice, markets barely registered any reaction. One commentator this morning commented that it was almost as if they had become desensitized to such developments. Indeed a similar pattern accompanied the recent “crisis” of the widespread attack of the WannaCry computer virus, despite its obvious commercial ramifications. Of course a cyberattack of this nature generally spurs a surge in consultancy and security spending – that is stage 1. A more sinister impact, though is the barriers to entry that this creates for smaller businesses and even mid-size corporations who are struggling with increased tax and regulatory burdens across certain sectors. As hackers outmaneuver and outpace the building of security barriers, the expenditure on protection will soar – whether in the “ops” side of private equity and debt portfolio companies or in our asset managers themselves. This squeezes margins and grows cost centers, leaving less money to be invested in R&D, cap ex or talent. It may drive more efficiency in other areas, but overall it looks like more profit erosion for little tangible return. Maybe markets should be less resilient and more sensitive to these issues.