Online research meetings receive a downgrade
Payment for research has been a contentious issue since fund managers were forced to unbundle their costs and breakdown exactly how they spend money, that is ultimately paid for by their underlying clients
The situation faced by almost everyone worldwide this year has changed many facets of modern life, not the least of which is the way that we work within service industries.
Staff within the financial services business sector across the City of London, New York and other finance hubs have spent most of the last 8 months, and in some cases longer, working remotely, meeting online, often with just skeleton teams in the office, if any at all.
Though it could hardly be described as business as usual, work has continued largely without interruptions, thanks to robust communications networks and technology that has allowed us to take the office with us. The use of corporate VPNs, intranets and voice over IP phones has created distributed offices and teams.
The change in the way we work, even within the largest enterprises, has been so profound that it prompted one of the worlds largest CRM and database management companies, Salesforce, to spend almost $28 billion on Slack, a emote workflow integration tool.
Working remotely has not noticeably reduced productivity in most service-based businesses, however, research has started to emerge that shows not all working relationships are as easily transferred to the virtual world.
US-based Substantive Research which tries to match asset managers with appropriate research resources and analysts looked at the way the buy-side values sell-side research in the age of online meetings.
Substantive surveyed 20 Asset management businesses across the UK, Europe and the USA, who manage a total of $4.90 trillion between them.
What they found was surprising and something that, banks, brokerages and research houses will want to take note of.
Whilst the frequency of meetings between analysts and money managers has not been greatly reduced, with physical meetings being replaced by video calls, webinars and screen-sharing.
The value that the buy-side places on these interactions has been sharply reduced, and for one to one meetings this has fallen by -47%, according to the survey data.
Group meetings only fared slightly better with the money managers valuing online group gatherings at 35 less than they did comparable face to face meetings.
That negativity has started to influence thinking around budgets allocated to research among money managers with 40% of the managers surveyed who had agreed on a defined 2020 research budget now reassessing their expenditure.
According to Substantive Research, “Annual research budgets can vary greatly depending on the size of the firm, from $1m – $50m+ for the largest asset managers. Analyst interactions make up 50-70% of research budgets, with one-to-one meetings as the main driver of those payments.”
Payment for research has been a contentious issue since fund managers were forced to unbundle their costs and breakdown exactly how they spend money, that is ultimately paid for by their underlying clients.
As a result of which investment banks and brokers were forced to reassess their research provisions and costings. Those assumptions could now come under renewed scrutiny particularly if trading, M&A and IPO volumes in 2021, don’t match up to those enjoyed in 2020.
Ironically, of course, if banks and brokers trim their research coverage further it may place the onus for research back onto money managers, who will need to build out their own in house research capabilities which of course will raise their operating costs.