S&P Capital IQ, the research and market data division of McGraw-Hill Financial, announced that it is trimming its equity research group by laying-off close to 50 analysts. This followings a decision made last month to shutter its fund research and ratings group.
Layoffs at Equity Research Unit
Michael Thompson, the new head of S&P Capital IQ’s equity-research business, said that the firm plans to shrink its equity research staff from 66 to 17 analysts, with many of these layoffs having already taken place last week.
Thompson replaced Barbara Reguero, who also resigned last week. Ruguero had a long career in research management at a number of well-known investment banks, including Nomura, JP Morgan, and Bear Stearns.
Certainly, one of the reasons for this “right sizing” was financial as the equity research unit had become a money loser in recent years. This was due, in large part, to the fact that S&P Cap IQ’s research products did not keep pace with competition from firms like Morningstar in the wake of the Global Research Analyst Settlement.
Management at S&P Cap IQ explained that its equity research business “… is a business that is strategic, but it needs to be innovated.” While the group expects to realize some savings from the move, some of the savings will be plowed back into the business to invest in new products.
S&P Capital IQ plans to refocus its equity research group to cover new areas and differentiate its research product. A few of the new focuses include coverage of initial public offerings, short-term trading ideas, as well as research on sectors and industries.
This is in addition to the group’s traditional research coverage of individual companies. Management also expects the unit’s coverage to grow despite having fewer personnel by relying more on automation for various research and data analysis functions.
Closure of Fund Research Group
These layoffs follow S&P Capital IQ’s decision to shutter its fund research and rating service by the end of March, 2014. The company, which has been carrying out fund research since 1990, wrote to clients in January telling them it is “likely to discontinue its fund research and funds ratings/gradings business”.
Mr. Thompson explained the move last week saying that the group wasn’t seen to be a core business, so the company decided to close it down.
This decision by S&P Cap IQ is likely to be seen as good news for rivals in the fund rating business such as Morningstar, Thomson Reuters (the owner of Lipper), Zacks, and other new entrants into the space.
S&P Capital IQ’s decision to close down its mutual fund research and ratings business and right size its equity research group should be seen in the context of similar efforts by parent, McGraw-Hill Financial, to rationalize its overall business. Of course, the challenges seen in the equity research industry in the past few years have clearly prompted management to make these moves as S&P’s once highly successful equity research business became a money loser in the past few years.