Event Report: Research optimisation for generating and retaining Alpha
01 May 2019
Members from both buy-side and sell-side participated in the breakfast event organised by VTFinTech and Alphametry. The speakers discussed the emerging trends in investment research and its consumption. They shared insights on the changing behaviour of research spends.
Majority of buy-side firms are choosing to absorb the cost of research. This has resulted in slashing of research budgets, shrinking research coverage and a responsibility to justify the spends to the management and in some cases, the end investor.
In 2018, the focus for most firms was on compliance with new regulations under MiFID II. In 2019, the focus is shifting towards finding paths for sustainable growth and competitiveness. One such area of emphasis is making the most of their current research coverage. Fintech solutions are providing novel ways to integrate research in investment strategies, generating alpha from research and create optimisation rules for retaining this alpha.
Buy-side expectations included performance. There is a continued need for high-quality, reliable and timely research. The providers who can deliver this to their buy-side clients, will definitely retain the edge over others. Buy-side also mentioned how they are incorporating new tools to refine their research consumption. While in the past research monitoring was less, now they are mandated to maintain a record of research consumption. These could also be opportunities for fintech and incumbents to find ways to collaborate better for compliance.
From sell-side perspective, while IRPs were always conscious of their pricing strategy, bulge bracket banks are evolving their strategy now under MiFID II. The prices are in flux right now, but in another 12 months a market equilibrium can be reached. Participants also shared that perhaps research itself could emerge into two separate categories –ideas and information – each with their own unique value proposition.