There is a need to develop greater areas of technology, personalization and self service within equity research’s offering for enriched actionable insights and automation driven by metadata and financial metrics. There hasn’t been a more pertinent time for Tier1 and Commcise to announce their new partnership delivering insights to the sell-side to better value and service the buy-side.
Last month, I participated on a panel at the Unbundling Uncovered USA 2022 event to discuss the evolution of the equity research budget hosted by Substantive Research. Having spent many years in the Research department at Barclays, it’s a subject that has consumed a lot of my time and effort over the years. Buy-side firms are increasingly confident in their research valuation processes, which are now reflective in the budgeting process driven by demand and needs from their investment teams.
How is Equity Research and Data Changing?
During the event, I was interviewed and asked several questions on what the research budget looks like in 2022, and how the allocation of the budget and the consumption of research by asset managers is changing?
In your opinion, what has been the most important trend in the research industry over the last 12 months?
The most important trend has been the use of technology to better understand the dynamic between the sell and buy-side. The vote process has always been quite robust and quite detailed. Many clients on the sell – side would like to have a more specific rate card, but barring that there’s a lot of information, what they do with that information is the most important. Leveraging technology like a CRM or database is critical to success.
Being able to capture client profiles digitally, tag interests, track individual service preferences, and more importantly, what types of services they value over others, so that the delivery of research and content can be much more targeted and personalized is important to improve impact. Without that, it’s going to be hard to deliver value.
The spray and pray of distribution of research in content is an old methodology that’s not going to work. You’ve got to be much more granular in understanding the individual client needs to have impact. That’s the most important trend that’s happening between the sell and buy-side.
The Effects of Regulation
How does the current regulatory environment affect the research and data markets?
Current regulatory markets aren’t changing anything. The impact happened many years ago when MiFID introduced what I discussed at that time as the unattended consequences of change driven by regulation which largely now is coming to fruition. Since then budgets have shrunk. The vote, while it’s been in place for a long time to help allocate commissions, is getting much more granular and targeted towards those that are delivering value.
The allocation of commissions is creating a barbell approach in the market. On one end of the barbell, you have the large bulge bracket, waterfront coverage firms, that can provide a lot of breadth and depth, quality as well, and have more services to garner a bigger share of the wallet. On the other end of the spectrum, you have small independent research firms’ that deliver high quality thematic research with industry experts’ offering deep expertise, delivering a lot of value, taking the budget, and getting paid appropriately.
And then there’s the firms in the middle that are trying to do a little bit of everything, but don’t have either breadth of coverage or service or a specialization. For these firms, they’ve got to really pick their spots and make sure that they’re delivering value and having impact and try to be more thoughtful about how they shape themselves going forward.
The Relationship Between Equity Research and Data
As investment functions increasingly focus on data and how it can improve their investment processes, how should institutions manage the increasing overlap between research and data?
Data is important and has always been. While the buy-side is acknowledging data more explicitly in the vote process it’s not something new. There isn’t an increased budget to cover the needs of data but rather a designation of the current budget, and therefore there is no need to create a separate data team or service offering. Research firms need to be more creative in their use of technology to embrace this trend to capture data.
Those firms that understand this need are putting technology in place to capture data mainly in two areas. The first is the data derived from the Fundamental Research teams and the other data is coming from the quantitatively, systematic research teams mostly consumed by the high frequency hedge funds and quant managers.
Being able to deliver data in a medium that clients can ingest for their own investment needs is very valuable to their clients. Some firms have tried to set up data only services and this isn’t proving to be successful or nearly as profitable as they imagined it could be. With a shrinking commission pool for Research, the buy-side is and will find it difficult to create room for a new type of data service at the expense of the demands they already have.
Therefore, it’s more important to layer data into the current Fundamental research offering instead of trying to create an entirely new data only model with an investment in new teams or data scientists to support this need. Adding cost to an already challenged research budget is not the right way to tackle the demand for data.
Tier1 and Commcise New Partnership
At the event, Tier1 and Commcise announced a new partnership delivering insights to the sell-side to better value and service the buy-side. There is a need for the sell-side to develop greater areas of personalization to service the buy-side with their research offering. Embracing technology to capture research preferences by clients is a start to establishing a framework for actionable insights and automation to improve client engagement and revenue outcomes. To be successful, research providers need to understand client personas & tailoring accordingly and have direct API to the buy-side for the broker vote submission. Read more about the partnership and features or request a Tier1 demo.
Key Takeaways from Unbundling Uncovered USA 2022
Click here to review a few top tips gathered from the speakers at the recent New York conference on June 15th outlining highlights including the demand for data, ESG research, and what’s impacting research budgets.
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