June 22, 2022

5 Key Takeaways from Unbundling Uncovered USA

The following is a collection of perspectives from our wonderful speakers at our New York conference on June 15th. Thank you so much to those who gave their time and insight into the future of research and data. As a collation of different comments there may be contradictions below, but that’s what makes it such a fascinating market! 

1) Data is King, Long Live Research

Fund managers’ jobs have become more complex, and the need for greater control and broader awareness is driving demand for data. It is also about a new generation of portfolio managers who are hungry for data that can be integrated into their process without friction. That is driving those who manage research and data budgets to work more closely together, and ensure that the same rigor, discipline and accountability exists across both budgets.

In terms of supply, valuable data is being offered by the sell side, but the way it is priced, delivered and incorporated into the existing research and overall relationships is still evolving. There are also unique datasets coming from niche providers, and there seems to be low barriers to entry to gain a foothold in the market. But data is often presented to the buyside as a solution to a problem that may or may not exist. For that approach to succeed it has to coincide with a PM’s needs at that moment, which happens rarely. So data discovery and assessment needs to be dynamic and frictionless, with data providers working hard on the marketing and onboarding sides of their business.

The demand for the research overlay to all this data still exists, but it may exist in different formats – for example short videos from analysts summarizing key calls and indicator work. And the more integrated and aligned that research is with differentiated datasets, then the more it will command attention and share of wallet.

2. The Buy Side is Doing It For Themselves

Asset managers aren’t necessarily good at sharing information – a PM isn’t often thinking that some research or data they may have gained access to for their own needs might also prove useful for their other colleagues in the firm. So it’s up to the organization to solve that. Add to that the fact there are too many venues to access content, and the motivation is there to improve your knowledge management holistically across research and data. 

The Cloud has helped with the collection and housing of data, but searching through that data library is a work in progress. It is becoming more important to have an internal team to navigate and evaluate all the datasets and research available to the investment function, with access to tools to help them perform a curation and quality control role. 

Large firms are building this infrastructure internally using components sourced from tech vendors, but what about smaller firms? The bar keeps rising on the cost requirements to compete, and this focus on data has added to that burden for them.

For research providers, the sales role is changing, and expertise is critical – both on clients’ investment processes as well as the way their organizations tick in practice. Selling data and research to PMs in 2022 requires an understanding of their organization’s internal architecture, budgeting delineations and the stakeholder situation within each account. It may be that in future a broker won’t get on the list without an API going into a clients’ internal portal, and brokers have to decide what their strategy is in response to that.

How to compete as a provider that’s not at the top of most research lists? Tailored servicing and content delivery is key – there is still too much mass emailing, and centralized content creation without the human and technological resources applied that can give investors bespoke, matched experiences with fewer touchpoints. Understanding client personas and tailoring accordingly just became mandatory for success as a provider. 

3. Retail flows will drive more demand for ESG research, and investor protection will drive regulation in Crypto

The job of the ESG research team on the sell side will be to make itself redundant. By then ESG would be completely integrated into analysts’ processes and products. For now an ESG overlay is also required for clients, but that is a function of the youth of the market. 

For institutional CIOs, ESG investing is about integrating material, environmental, social, and governance factors into your investment analysis to have the highest risk adjusted return. But many retail investors may be willing to accept lower rates to have investments in-line with their values. Hence the challenge for research to cover both drivers – ratings allow fund managers to show initial credibility but this needs to be accompanied by research that can cover a variety of areas. For example, at the moment clients want to talk to lawyers, not climate scientists as it’s all about greenwashing risks and the roadmap for further regulation. 

When it comes to digital assets, retail participation is significant so there is a consumer investor protection angle that will ensure momentum in regulation. When it comes, regulatory clarity plus a reduction in counterparty risk would drive rapid institutionalization, and then firms will be catching up – the demand for institutional-level research will increase dramatically. Right now there are pockets of good research, but much of it is outside the sell side, which is understandable as it’s harder to get paid through trades etc. As momentum builds, retaining crypto-aware talent will be difficult for the traditional sell side. 

4. Budgets will be tested this year, so scarcity is the only thing that matters

The buyside is dealing with a scarcity of talent available in the market, a scarcity of time as always, and now some are dealing with a scarcity of budget with leaner times ahead. 

On the sell side this dynamic creates opportunities, as long as research providers are offering differentiated products that are provided in a digestible and frictionless format, and that have that crucial element of scarcity. Research is turning into a more normal market – in Corporate Access fewer conferences will be attended but they will be even more popular, while others with less gravitational pull will fall away. Only a few brokers will be able to field CEOs, so they will expect the rewards from buy side clients that they feel should accompany that leverage. 

Much of this focus on scarcity translates into renewed concentration of budgets to the largest players, a theme that has been playing out for years but is now even more evident. This will translate to an adversarial negotiation round later this year, as providers who have kept their cost bases intact push for appropriate remuneration.

Getting transparency in the value delivered to investors is still an issue where the buy and sell side differ. The buy side do want to provide insight into what is being valued most highly, but do not think it’s their job to direct how analysts should be rewarded or resourced. Some think that interaction data is sufficient as an indicator for brokers to ascertain where they are adding value, while others fear that greater transparency will just drive more questions from the sell side. Transparency is a currency – the vote will only get you so far, so an experienced and consultative sales team is the way to really understand where you are adding value at each account. That’s a significant cost base, so again it seems like critical mass is a self-fulfilling dynamic in this market. 

5. It’s great to get together again

The final theme is the value that in person engagements bring. People are more discerning about what they will attend, and who they need to meet outside of a virtual setting, but when they do they derive greater value and remunerate accordingly. At Substantive we echo that – it’s been fantastic to have packed events both in London last November and in New York last week. Thank you so much to everyone who attended, it was great to see everyone meeting old friends and making new connections – see you in London at the IoD on November 9th!

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