What sets Europe’s best independent research providers apart

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A rising economic tide may have lifted all boats, but Europe’s leading independent research providers believe they are in a better position than ever to help their buying clients.

“Investors are increasingly recognizing the need to reconnect with research providers to better understand the post-pandemic environment,” said David Bowers, head of research at Absolute Strategy Research.

Bowers said investors quickly regained their confidence after the start of the Covid-19 pandemic, given the scale of the political stimulus. A recent survey by Absolute Strategy found that even 18 months later, more than 200 major asset distributors managing nearly $ 5,000 billion of them “show overall confidence above average levels of the past six years – with nearly three-quarters of those polled expecting stocks to beat bonds over the next 12 months.

Before the Covid-10 pandemic radically changed every aspect of working (and non-working) life, independent financial research providers struggled with regulations such as the Markets in Financial Instruments Directive of 2018, or MiFID II, which separated research expenses from trading.

“The post-MIFID has been pretty long now,” said Iain Johnston, president and founder of New Street Research. “This has clearly had an impact on research budgets and in general has been negative for the industry as a whole.”

MiFID II has been used by buyers to recalibrate and rethink their research spending, Johnston added, creating challenges for everyone from leading companies to specialty companies. But he said independent research providers like New Street are uniquely positioned to continue to gain market share. “Our view is that the IRP’s share in a number of cases, including ours, has increased during this time,” said Johnston. “More thoughtful decisions about research spending are made despite a clustered environment and this has led buyers to look to where they are achieving maximum value and to tap into the intellectual capital that specialists like us can provide. “

In addition to product differentiation, independent companies also offer service differentiation, according to Ian Harnett, chief investment strategist at Absolute Strategy. “Our product aims to help investors understand the markets, rather than just providing information about what is going on in the markets,” he said. “This comprehensive, globally integrated approach is difficult to achieve for investment banks – with separate teams of equities and fixed income and other IRPs – which tend to be more often than not a set of voices. individual. “

In Institutional investorThe research team from across Europe, buy-side investors named Absolute Strategy the # 1 vendor among independent research providers. The company also dominated the overall macro category for European IORPs.

New Street took second place in the overall survey and was also No.1 for overall industry coverage. Arete Research and Empirical Research Partners ranked third and fourth, respectively, for overall research. Cornerstone Macro rounds out the top five.

Bowers of Absolute Strategy was the # 1 independent research analyst and he also dominated the macro category.

According to Bowers, the main challenges facing IRPs remain threefold. “First, the aggressively low pricing by investment banks for their research, with the cross-subsidization of their research offering to buy-side investors given their profitability compared to IRPs,” he said. declared. “Second, the continued volume of searches available from regulated and unregulated entities as well as for ‘free’ available on the web. This proliferation of “views” and information often makes it difficult for research consumers to identify quality. ”

Finally, he highlighted the shift to a more “transactional” relationship between research providers and their customers, as dedicated sourcing teams seek to reduce the costs of their research, with products often appearing to be compared on price rather. than on “quality”.

And other regulatory hurdles loom on the horizon with a FCA proposal to exempt independent research companies from the incentive rules of MiFID II, a complex set of rules that prohibit incentives from being provided with an investment or a service.

A recent 2021 survey by the European Association of Independent Research Providers found that 100% of its members support the FCA exemption, with 94% believing that mainland European regulators should follow suit.

But, Bowers noted, “The FCA is not helping IRPs as their latest consultation paper appears to suggest that the regulatory capital that IRPs will be required to hold – even if they don’t trade or hold the capital. ‘client money – will grow by more than ten. fold. Unless IRPs wish to shut down, many will be forced to move their businesses into the unregulated space – and avoid providing specific investment advice to clients. “

Still, Johnston of New Street believes boutique firms like his will have more opportunities to capture opinion because of the quality of their research teams. “We believe stores have the ability to use our intellectual capital and the point is, we have more experienced analysts than traditional high growth companies.”

As independent research teams and independent research teams and their clients return to the office, the hybrid model will persist. “We’re going to learn a lot more about people’s willingness to go back to where they were and to what extent the buy side will embrace the flexibility of the remote,” said Johnston.

But keeping up with their customers is what vendors like New Street do best. “We are flexible depending on the needs of our customers,” said Johnston. “We are on the selling side; we meet the needs of our customers and tailor our service to what our customers want. And in an environment like this, store vendors can excel.

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