New York, NY – Last week, London-based macro-economic research provider Lombard Street Research reported double digit growth in revenues for the year ended March 31st. This gain is consistent with feedback Integrity has obtained from other research providers which reveals that the bulk of the growth in the indie space over the past year has been with macro and policy research providers.
Lombard Street Performance
According to filings with the UK’s Companies House, Lombard Street Research posted a 12.7% increase in revenues to £6.2 mln for the twelve month period which ended March 31st. This is up from £5.5 mln in revenues seen in the year earlier period. Net profit fell 7.6% during the period to £162,624 from £176,059, due primarily to an increase in staffing costs.
Company management attributed the increase in revenue to the fact that macro and thematic research has become increasingly important to investors in the current market environment – becoming a “need to have” for many institutional investors.
Modest Growth for Overall Indie Market
Based on Integrity’s forecasts, global spending on independent research is expected to grow a meager 2.4% to $2.15 bln in 2012 as declining commission volumes, compliance concerns, and general market uncertainty hampers institutional investors’ willingness to add a large number of new providers.
Consistent with Lombard’s recent earnings report, we estimate that the bulk of the gains in 2012 will come from a 3.6% increase in spending on macro research – a category that includes general macro-economic research, policy research, research on political and country risk, and political intelligence.
Our rationale for this projected gain is that we expect that global buy-side investors have relied on getting major macro themes right, as well as trying to profitably position themselves ahead of the 2012 US elections. Certainly, a number of indie research firms have confirmed this view as they have seen buy-side demand for macro and policy research pick up this year.
Slight Stumble for Political Intelligence
The one area of macro research which has not done as well as we originally expected this year is the political intelligence segment. Traditionally, this type of research fares quite well in an election year. Unfortunately, this year’s passage of the STOCK Act prompted considerable undue attention on the use of political intelligence from Capitol Hill and journalists covering this development.
Consequently, a number of buy-side investors decided this year that the “headline risk” of using political intelligence services was not worth the benefit – particularly as this issue has been given to the GAO to study. This has prompted some institutional investors to pare back their use of these research products this year.
Despite this fact, we are confident that investors are likely to resume their use of political intelligence services next year, once the GAO delivers their report on political intelligence.
As we have mentioned a number of times this year, the independent research industry is experiencing an extremely difficult environment in 2012 as commissions continue to slide and compliance concerns have reduced investors’ appetite to add new research providers.
However, the one bright spot in an otherwise depressing picture for indies has been the modest gains seen in the macro-economic and policy research segment as buy-side investors try to get the “big picture” right in order to profit from country, asset class, and sector bets.