As of the beginning of 2010, there were 1,038 active independent research firms in our ResearchSelect database, along with 238 investment banks that provide investment research, and 49 paid-for research firms. A mind boggling number, especially for someone who thought in pre-Spitzer days that the total universe of independents could not top 150 firms.
|% of Total
The most common type of research is fundamental research, which typically provides valuations, earnings estimates and buy/sell recommendations. Fundamental research encompasses the bulk of the research provided by investment banks, which have been cutting back on other research offerings such as economic and technical research. When you include independent research firms, however, fundamental research firms are most populated category, but not the majority. Fundamental research firms represent 41% of the universe of active firms (excluding the private and in-progress firms.)
Specialized research, which is our term for research firms not otherwise classified, such as forensic research, insider analysis, merger/risk arbitrage analysis, is the next largest category, representing about one quarter of the firms in our database. The largest segment within specialized research are the industry consulting firms, which provide detailed analysis of companies and industries, but, since they are typically serving corporate customers, focus on product line forecasting and industry trends rather than the valuations and buy/sell recommendations of classic fundamental research. Nevertheless, these firms are of increasing interest to buy side analysts, which is why our coverage has been growing.
The next largest category within specialized research is ESG research (environmental, social and governance), despite recent consolidation in the space.
Primary research is the next largest category, measured by numbers of firms. Over half the firms are survey firms which provide assistance in conducting user surveys. Expert networks have also been growing, now totaling 38 firms, based on our latest report.
The number of economic research firms is nearly as large as the number of primary research firms, also representing 12% of our database. The size of the this segment is partly the result of cutbacks in economic research offerings by investment banks, as economists and investment strategists form their own firms or join other independent firms. We’ve also seen growth in the number of firms offering governmental and policy analysis, as Washington’s influence on the investment landscape has grown.
Quantitative research is a difficult category because quantitatively oriented asset managers have their own proprietary models, and are not typically interested in the models of others. This tends to keep the numbers of quant research firms low.
Despite a resurgence of interest in technical analysis over the last year, as many asset managers were trading the markets during the periods of greatest turmoil, the number of technical research firms has not burgeoned.
The biggest driver of growth for independent research has been the hedge funds, which increasingly seek non-traditional, non-consensus sources of research. The hedge fund industry survived the financial crisis and is coming back strong. We expect that the number of research firms to continue to flourish in the coming years.