By Vicky Sanders, Co-CEO and Founder RSRCHXchange
Quality Crowded Out
For most hedge fund managers, research is a problem when it should be a resource to make your life easier and help you produce more alpha. Despite having a well-paid sales contact at every sell-side firm, there is little to no filtering or personalisation of content. Instead, your inbox is stuffed full of loads of research reports each and every day. As is often the case with that sort of volume, you have received everything but can’t ever find what you’re actually looking for. This is all because research is a push not a pull business. Providers are incentivised to produce as much content as possible. Like throwing spaghetti at the wall, they hope that something might stick – that they have sent you the right report at exactly the right time. Of course, that is near impossible – who can read your mind? This exercise is repeated across the sell-side as each firm vies for a portion of your research spend to be doled out at the end of the quarter.
The market for research is enormous. Beyond the thousands of reports written every day by hundreds of bulge, mid-tier and regional banks, there are a further 2,000 independent research providers globally. On top of those, there are hundreds of industry consultants and market research and channel checking firms. Within the volume, there are a large number of high-quality, value-add providers. Some are traditional research analysts covering stocks and sectors while others are economists, strategists, and political experts with insightful global views. Technology has also advanced considerably but is only just now beginning to find its way into financial research – there are new, interesting sources of data while technology driven strategies – the use of satellites or email worms, for example – which are enabling firms to analyse companies from an entirely new angle.
The problem of research extends beyond the ability to separate the quality from the quantity. Once a provider has been found, research stops being just a fund manager’s problem and becomes a firm-wide affair.
Cumbersome, Complex and Outdated
The process of adding a new research provider at most hedge funds goes something like this:
- Fund manager finds new research (either themselves or after a lengthy sales process) and initiates provider onboarding – either via a hand written, email or intranet form
- First port of call is often the desk head for business approval
- Then off to compliance for their checks. A lengthy compliance questionnaire is sent to the provider, often taking weeks to fill in, and due diligence checks are performed. The legal department may also be involved to review any service agreements.
- Once compliance have signed off, it’s over to the finance department to have the provider added as a counterparty, ideally to be paid via soft dollars through a commission sharing agreement. Most hedge funds don’t buy research on credit cards.
- Needless to say, that process takes a considerable amount of time – counted in number of months not days – and involves a number of individuals from different teams across the firm. Since financial markets operate in real time, there is a dislocation between the time when research is needed and when it can actually be accessed and paid for.
Standing still is not an option
Looking forward to January 2017, the firm-wide problem of research will get harder not easier. In a MiFID II world, where all research is priced, more pay walls will appear and access to research will be even more difficult. Hedge funds in Europe will be required to do much more than just pay for research separately from execution services. Also included in the new regulations are elements like the setting of research budgets, assessment of research, creation of audit trails and senior management oversight. Added together, that only means one thing – higher internal costs.
Built in consultation with hedge funds and asset managers, RSRCHX is the first online marketplace designed to transform how the financial industry buys and sells institutional research. A cost-free solution for the buy side, the platform tackles the existing inefficiencies of finding research and onboarding providers as well preparing firms for MiFID II.
In an age of social media tools, mobile access and search-driven functionality, hedge fund managers can now search, access and purchase a wide range of multi-asset research on a single, sophisticated platform. For the first time, PMs and analysts can search within the aggregated content from multiple sources and buy the research you need in real time through one, centralised counterparty. All content is hosted in the cloud, taking research out of the inbox and putting it in a searchable, virtual library. Our powerful platform enables firms to better, more efficiently manager compliance, onboarding, budgets payments and subscriptions, with absolute confidence in the due diligence and compliance checks of every provider.
Change is coming for the world of institutional research. Unbundling is happening. The time to put new practices for research access and procurement in place is now. Not only because it makes business sense, but also because it enables hedge funds to stay ahead of MiFID.
To find out more please go to http://rsrchxchange.com/
About the author:
Vicky Sanders is one of the two founders and co-CEO of RSRCHXchange, the online marketplace for buying and selling institutional research, launched in September 2015. Prior to setting up the new venture, Vicky was Head of Analytics Sales at Marex Spectron, a leading global commodity broker, in charge of the firm’s sales effort for a newly developed research product. Vicky joined Marex Spectron from Goldman Sachs, where she was Executive Director, in the Equity Sales division, covering hedge funds and long only institutions. She began her career at Merrill Lynch in London, where she worked in Global and European equity sales.