London-based sales agent Ed Blad has expanded the roster of independent research providers he represents and added staff in anticipation of a more level playing ground for independents after MiFID II’s research unbundling provisions go into effect. However, the current sales environment for research remains challenging.
Blad’s firm Independent Research Forum now represents 96 independents, is looking to expand it further. He hired a former buy-side portfolio manager, Alexis Vatistas, in January this year. Vatistas has 15 years buy-side experience most recently as a Japanese equity PM at Universities Superannuation Scheme, a pension fund for UK university employees with approximately £50 billion in assets. IRF is planning to hire a Macro salesperson and a specialist in the technology sector before year end.
IRF also began publishing a bi-weekly newsletter called The Cut which summarizes recent research from the independents the firm represents and highlights upcoming analyst visits to London organized by IRF. Each edition might include abstracts on 12-15 reports from Macro and stock researchers and up to a dozen upcoming visits.
The newsletter is edited by Richard Dutton, who also joined IRF in January. Dutton has been trading his own book for 10 years focusing mainly on U.K. mid and small caps.
Blad says that IRF has set up over 500 introductions with 50 relationships in place, up from 200 intros and 28 closes when we last profiled the firm six months ago. He doesn’t feel a closure rate of 1 in 10 is a fair statistic because of trials and pending decisions, believing 1 in 6 might be a more accurate conversion rate.
Macro research has been a harder sell than company research but IRF has been “slowly and surely getting traction with our Macro services.”
Hedge funds, which have a tighter control of their P&L and quicker decision making abilities, are generally more fertile ground for boutique research than long-only investors. The broker vote tends to be a barrier to entry for independent research, because the investment banks devote large resources to the long-only houses making it difficult for the smaller research firms to receive votes.
Although IRF encounters asset managers who won’t even countenance an introduction to a new researcher until MIFID II goes into effect in January, 2018, Blad is optimistic about MiFID II’s impact on independent research: “We feel that MIFID II will focus the mind of the professional investor with regards research usage – specifically value for money. This should lead to quality IRPs taking market share from investment banks as MIFID II leads to a level playing field.”
Blad has been distributing independent research since 2007, when he joined Eden Financial’s Independent Research unit, the predecessor entity to Marex Spectron’s Independent Research & Commission Management group, which recently lost the head of its unit. Eden Financial’s unit was founded by Jamie Stewart, who ran Instinet’s independent research distribution operation from 1999 to 2002. Stewart is a Senior Advisor to Independent Research Forum.
Although IRF has generated sales momentum, we have heard from other London-based independent research firms that the sales environment is difficult as many asset managers have placed a moratorium on new research purchases pending implementation of the new research procurement requirements under MiFID II.
Moreover, asset managers are cutting research budgets, and in some cases cutting smaller research providers to consolidate relationships with fewer larger banks that can offer a broad range of services. US independents suffered a similar loss of market share when commissions shrank dramatically in the immediate aftermath of the recent financial crisis.
Nevertheless, the reality is that independent research is under-penetrated in Europe, and, irrespective of whether MiFID II is ultimately a boon or bane to boutiques, the market share for independents will increase. The growth in IRF’s business lends verification to this view.