Visible Alpha creates a unified consumption and collaboration experience across research reports, analyst models and corporate access events and enables clients to discover, track, budget, value and pay for research content.
Asset managers are reevaluating how useful the investment research they receive is, as a new set of European rules have forced them to put the research status quo under a microscope.
The MiFID II rules in Europe that came into force this year require managers stop the common practice of paying for research through trading commissions – a mechanism still allowed in the U.S. This has impacted some U.S. firms directly – but has had a far-reaching indirect impact on managers globally, requiring many to reassess the research they receive.
Voya Investment Management has adopted a new way of evaluating the research its portfolio managers (PMs) and analysts use, globally, even if the mechanisms for paying may differ by geography. The MiFID II rules have acted as the catalyst, but much of it is also based on trying to identify which research is most useful and what should be paid for it – a question that is also appearing on requests for proposal, according to Nanette Buziak, global head of equity trading for Voya, speaking Wednesday at a Securities Industry and Financial Markets Authority (SIFMA) event.
Investment staff have changed their behavior, Buziak says, as the firm has begun to identify the value of research – which can include calls with a top analyst from a sell-side bank like Morgan Stanley or J.P. Morgan, attending a conference, or arranging a meeting with senior management of a public company – a process referred to as “corporate access” that brokers arrange for asset managers.
“PMs and analyst are turning down meetings,” she says. “They know that who they report to is going to be evaluating what [research and associated meetings] everyone taking and if it’s not of value, then don’t take those meetings.”
With this greater awareness, there is also a cost. The firm has to spend time and energy analyzing what research was most useful. This pressure is being felt by a number of firms grappling with new ways to evaluate investment research – a need that has spawned specialist consultants and new technology vendors.
A handful of U.S. firms are working to evaluate research costs because they have been swept up in MiFID II’s net, although other U.S. firms are doing so because they believe it will make them more efficient – and because they see MiFID as a driver of change globally, says Scott Rosen, CEO of Visible Alpha, which offers a product Voya is using to analyze its investment research.
The tool helps managers quantify the research they consume, and systematize the way they pay providers. PMs have traditionally have not had to pay much attention to where the research was coming from – and in some cases a PM overseeing a large fund may receive research from 100-200 brokers. Quantifying this helps managers decide what is worth paying for, says Rosen.
The firm quantifies all research used by an asset manager, which helps them decide what is worth paying for, he says. “How many meetings, conferences, corporate access events, analyst calls does the manager take? We consolidate that and provide it to [managers] in a normalized way they can understand,” he says.
The next step for this type of technology will involve attributing specific research to investment ideas and trades to provide more granular detail, he says.
“Unless you have a regimented workflow around idea generation and how it flows into trades and performance allocation, that information is very difficult to gather. Over time, that is the direction we’re going and over time we’ll have more flexible ways to gather that information – but in most firms, that doesn’t exist today,” Rosen says.
Managers have also had to renegotiate research contracts with the sell-side banks – their traditional providers – to land upon a common price for research.
Citi, for instance, has looked at what clients have paid in recent years and conducted an analysis of what its peers where charging, according to James Baugh, head of European market structure for the firm.
“The majority of conversations have been fairly amicable,” says Baugh, also speaking at the SIFMA event. “There are one or two examples where we have to just walk away and say to the client sorry we can’t agree.”