The “brain drain” in investment research has subsided, according to the latest equity analyst mapping study from Substantive Research, a buyside research consultancy.
The company’s report which covers the first three quarters of 2021, analyses 50 buyside firms with assets under management between $30-$800 billion. The majority or 70% are European and UK based while the remainder are in the US.
The research
In the US, analyst team headcount was down by 1% although they had shrunk their teams by only 4% over the past three years.
MIFID II was a game changer with the introduction of unbundling. Most asset managers took the decision to pay for research from their own pockets and not from their funds.
The report notes that this has led to a “fragmented market where each broker is having its own unique experience in terms of its pricing power and ability to commit to quality and coverage from a cost perspective. “
It also found that firms, such as Jefferies, who increased analyst headcount in 2019 and 2020 against the overall market trend, reaped the benefits.
The result was that the firm rose into the top 10 research brokers by market share in payments during 2020 and jumped to seventh position during 2021 despite strong competition and significant market churn.
“In 2021 we saw broker research cost-cutting stabilising overall,” said Mike Carrodus, CEO of Substantive Research. “This has been driven by a subset of brokers retaining and hiring senior, quality analysts which has offset continued cuts among other sellside firms.
He added, “The buyside’s research valuation processes have matured in the last three years and now ensure that payments quickly reflect changes in quality and breadth of coverage. They are tracking and rewarding broker commitment to investing in the sector coverage they care about most within each broker.”
Carrodus noted, “What is also clear, is that brokers that increase both their analyst headcount and average experience levels in their teams are guaranteed to increase market share from their previous positions. However, increasing headcount without an accompanying rise in experience is not correlated with larger payments from clients.”
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