Goldman Sachs has led a $38m investment round for a research platform already backed by a club of big banks, highlighting how sweeping regulatory changes are forcing investment banks to find a new business model for the analysis they produce.
The investment research industry has been buffeted by changes in recent years, but the introduction this year of the EU’s regulatory overhaul known as Mifid II threatens an unprecedented shake-up by forcing Europe-based investors to pay for research, rather than compensating investment banks for the cost by sending them trading business.
Although implemented by the EU, it will in practice have far-reaching implications for US banks and asset managers, with many of the latter building up their own internal research arms or accepting having to pay for external analysis.
The twin commercial and regulatory pressures have spawned research providers and platforms on both sides of the Atlantic, encouraging investment banks to experiment with new forms of analysis and its distribution in the expectation that the overall pot of money available to pay for research shrinks.
Visible Alpha, a company founded by Jefferies, Morgan Stanley, Citi, UBS and Bank of America that Goldman Sachs is now investing in, aims to be a platform that aggregates and breaks down stock market research by investment banks, allowing asset management clients to consume the raw analysis and data in new ways.
The founding of Visible Alpha predates the introduction of Mifid II, but the EU’s new rule book is “magnifying trends that have already been building for a while”, according to Scott Rosen, the company’s chief executive. “The wind is obviously in our back due to all the regulatory pressures,” he said.
Visible Alpha’s latest funding round was led by Goldman Sachs, but Santander, Exane BNP Paribas, Macquarie Group, Royal Bank of Canada and Wells Fargo also participated in the $38m financing package, as well as Visible Alpha’s existing investors.
The company launched commercially in 2017 and says it has already grown its client base to more than 100 asset managers and investors that control $16tn. It plans to use the money raised to “accelerate product growth and global expansion”.
Visible Alpha’s heavy-hitting Wall Street backing stands out, but it is not the only outfit trying to take advantage of the tumult in the investment research world. Last year Street Contxt, a company that aims to “helps brokerages, independent research providers, and asset managers distribute, manage, unbundle and value research” raised $15m from hedge fund tycoon Steven Cohen and Joe Lonsdale, a prominent venture capitalist.
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