New York, NY – In the past we have written about the many differences between hedge funds and their long only brethren. One difference that we haven’t written about in the past is the types of research that hedge funds value versus what mutual funds are interested in. The following blog outlines some of the differences we have discovered in conducting various searches for both hedge fund and mutual fund clients.
Mutual Funds / Long Only Managers
Many of the searches we have conducted for mutual fund and other long only clients have revealed a few things. First, most of our mutual fund or long only clients have been interested in traditional fundamental company or industry research, quantitative research, and economic policy or investment strategy research.
The primary attributes that many of these clients value include deep industry experience, management access, investment ideas, access to analysts, and sales coverage. While comprehensive research reports are less important to these investors than it was five years ago, it still remains important — particularly to analysts at mutual funds and other long only asset managers.
Consequently, most mutual funds and long only asset managers value traditional sell-side research and fundamental company research produced by alternative research providers.
A number of mutual fund PMs and analysts also use non-traditional research like expert networks, forensic accounting, or channel checks. However, their use of this type of research is significantly less extensive than seen by hedge funds.
Our work for equity hedge fund clients has revealed a very different research profile. Many of these clients have been interested in having us help them find unique consultants and industry research providers in various industries and geographies around the world.
In addition, hedge fund clients have also been interested in conducting proprietary market research or channel checks in order to investigate an investment thesis. As a result, we have helped clients find appropriate vendors to conduct these proprietary studies.
Most hedge fund clients value access to experts, access to company management, and trading ideas. The research that they desire is typically proprietary in nature or restricted in distribution.
As a result, most of our hedge fund clients use a great deal of non- traditional research like expert networks, forensic accounting / quality of earnings analysis, channel checks, and market research. Hedge funds have also been the most interested in new and innovative types of research including patent research, weather research, management quality analysis, search based software platforms.
And though hedge funds continue to use traditional sell-side and independent fundamental company research, they do so primarily to gain access to company management and to validate their own investment ideas.
Surprisingly, another type of client that Integrity has done considerable business for has been quantitative hedge fund and mutual fund managers. The reason we say “surprisingly” is because most quants don’t use traditional investment research, primary research, or even industry consultants (our traditional expertise). They use data.
However, the team at Integrity has applied our skills of identifying, vetting, analyzing, and recommending research to the task of finding and evaluating unique sources of data.
One common theme that has emerged from our work for many quant investors has been helping them find high quality sources of non-US data. While many quant firms have been able to identify US data of sufficient quality, periodicity, and with enough history — this is often not the case with overseas sources of data.
So why do these differences matter? We think they matter because they reflect varying buy-side client research and information needs. Consequently, we hope that both sell-side and alternative research providers might be able to learn a few important lessons about what types of research are most valued from our experience with clients.