Euro IRP, the trade association for independent research providers that have clients or business activities in Europe, recently published its 2020 member survey. – the 4th consecutive year this survey has been conducted. As was the case in 2019, over two-thirds of IRPs surveyed continue to believe that regulatory action is needed to address predatory pricing by investment banks.
Key Results from 2020 Euro IRP Survey
The 2020 Euro IRP survey was conducted online, with responses sought from 74 member firms. 49 completed submissions were received; the same as in both 2018 and 2019, and ahead of the 46 submissions received in 2017. The survey was open online from June 24th through to July 23rd with responses from members across all key investment industry geographies. A few of the key findings from this year’s survey include:
- Two thirds of independent research providers (IRPs) – very similar to last year – are continuing to call for urgent regulator action on predatory and unfair competition, and over 75% see research prices as either flat or declining further in next two years
- Significant increase in buyside interaction and demand for independent thinking to help navigate the economic impacts of Covid-19
- Invesco Asset Management maintains its leadership position as the buyside firm that ‘gets’ independent research – the best at understanding and valuing such research overall revenues, and hence growing market share, as the buyside focuses more on differentiated and unconflicted sources of research
- Despite the challenging markets, IRP revenues are broadly stable, with 53% reporting flat with last year, and 30% reporting gains
- Neither Covid-19 nor Brexit are seen as immediate threats to the independent sector, but longer term impact of Covid-19 generates more concerns
Chris Deavin, Chairman of Euro IRP commented, “There are two key messages from the 2020 Euro IRP study. First, that demand for the high quality, genuinely independent analysis and thought which IRPs provide has really accelerated, as asset managers grapple to dissect the fundamental financial and commercial upheaval in the wake of Covid-19. Yet IRPs tell us their biggest challenge is monetising all this additional advice and interaction, which leads to the second key point – IRPs are still under real threat from the cross-subsidised, conflicted business model of investment banking research, and continue to seek urgent action from regulators to address this.”
Mr. Deavin added “We know there is an increasing number of buyside firms who treat independent research properly – measuring it purely on its merits, and how it can assist in their investment processes to generate better returns for clients. In our ranking of the buyside by IRP firms, it’s Invesco AM who place top again, with more asset managers than ever being cited by IRPs as truly ‘getting’ independent research.”
As seems increasingly the case across industry and commerce, the new normal will mean many fewer direct meetings for IRPs with clients or prospects. Use of virtual meeting platforms has increased markedly, with clients still placing premium value on speaking with independent analysts.
On buyside research budgets, levels of contraction, both in spend and number of counterparties, has reduced since 2019, but nearly 85% of IRPs are not seeing this spend increase. As UK asset management performance and returns lag behind North America, still with bundled research payments, will this trend continue for the future? Furthermore, for continental European asset managers, the impact of research budget declines is greater still. The recent proposals by the EC to rebundle parts of research services may partly address this in the future.
Our Take
The key results from the 2020 Euro IRP survey are not terribly surprising in aggregate, though there were a few additional findings from the complete survey we found that should be of interest for our readers. These include:
- Almost two-thirds of IRPs surveyed reported that COVID-19 was having little to no negative effect on their business, while a mere 4% stated that the pandemic had a substantial adverse impact. This is consistent with the feedback we have heard from most sell-side banks.
- 40% of IRPs are finding that engaging with prospective clients is either not possible or is considerably more challenging. However, 60% of IRPs have been able to achieve this, at least to some extent, with one in three doing so quite a lot or more.
- The average annual price collected in the 2020 Euro IRP survey for an IRP’s service is US$24,500, with the median price at US$22,000 – with underlying this was a substantial differential in individual firms’ pricing.
- The survey also showed that the pricing environment was relatively flat when compared to last year. This reflected upward price movement from mid-sized providers, while both the largest and smallest IRPs are those who are experiencing more price deflation, with neither group seeing any significant upward move in prices.
- Geographically, in the 2020 survey the continental European IRPs were the most pessimistic about the state of prices over the last year, with UK-based IRPs being the most positive. That state of affairs plays out again, with UK IRPs actually overall being even more positive than before. In North America, very much a mixed picture last year, a greater degree of price deflation has set in, with now almost two thirds of North American IRPs seeing some decline in prices in the last year, with none reporting the level of uptick that UK firms have recorded.
- Going forward, the IRPs surveyed are generally optimistic, despite all the issues facing them today. The majority opinion is for price increases, with 48% anticipating this, while a third of IRPs see more downward pressure on prices, with a bleak 9% expecting a 25% decline or more over the period.
- When asked what services the buyside values most, the IRPs surveyed said analyst meetings (18%), written research (17.5%), and new investment ideas (17%). It was particularly interesting that written research were seen to be slightly more valued in 2020 than in prior years, whereas analyst meetings and new ideas were slightly less valued in 2020.
- The top distribution platforms identified by the IRPs surveyed in 2020 in order of use include Bloomberg, Refinitiv, FactSet and CapIQ. Specialists RSRCHXchange and Substantive Research look to be gaining share.