For the first time, expert networks — which provide managers access to specialists in everything from pharmaceuticals and clinical trials to clean energy and other technologies —were among the top 20 of the highest-paid research firms, according to research from Substantive Research
Gerson Lehrman Group (GLG)
and Third Bridge which ranked eight and 14 respectively reflected the structural changes in investment research during the pandemic.
The study which analysed research budgets of buyside firms representing assets under management of $6 trillion found that traditional long only asset managers are helping to drive the growth in the sector instead of hedge funds which were once the main clients.
Traditional managers had been hesitant due to regulatory and compliance concerns over the nature of the insights gathered by experts. However, legislation has been tightened over the past decade.
It also showed that leading expert network payments per long only client rose dramatically in 2018 and continued to rise more modestly in 2020 as the pandemic created the opportunity and the focus on gaining market share.
Brokers still dominate though with Morgan Stanley, J.P. Morgan, and UBS in the top three spots followed by Jeffries in seventh place.
However, it said almost every other provider in the top ten moved around. This is particularly true of Sanford Bernstein and Exane, both of which gained significant market share.
Meanwhile, Empirical Research Partners is a new entrant to the list and is the sole representative for Independent Research Providers (“IRPs”). A
As a group, they have suffered from MiFID II, but some firms have managed to increase market share in a market where price was decreasing overall.
“Our research shows that COVID, ESG and a growing focus on data has significantly churned market share outside the top three providers in the research market, and provided new opportunities for the expert network industry,” said Mike Carrodus, CEO of Substantive Research.
He added that “On the broker side, clients are now much more astute and responsive in rewarding the providers that are investing in their core analyst teams. Long-only asset managers are also doing more and more with Expert Networks, which were once the preserve of hedge funds, consultants and private equity.
This is against an industry backdrop where there is increased M&A activity within Expert Networks, with new entrants bringing AI-powered solutions to market and raising money in the process.
Carrodous also notes that “the regulatory drivers that changed the research market since 2018 have now been replaced by new client demand-based drivers, and 2022 will show us a dramatically different competitive landscape as a result.”
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