A Few Takeaways from the ‘Unbundling Uncovered’ Conference

By Sanford Bragg June 26, 2020

Substantive Research’s influential conference on investment research went virtual Wednesday, covering the status of research unbundling as Europe considers rolling back MiFID II, as well as the impact of COVID-19 on research.

Substantive Research CEO Mike Carrodus said 550 attendees logged in during the four-hour event, with slightly over half (51%) from the US and the remainder from UK and Europe.  114 buy-side firms and 188 research providers were represented.  Replays of the event are available at https://unbundlinguncovered.vfairs.com/.  Separately, Substantive Research announced the hiring of Ned Davis Research’s head of sales as the firm’s sales manager for the Americas.

Here are some of the items that emerged from the panel discussions during the conference:

*The EU may implement changes to MiFID II’s unbundling provisions as soon as this year, as part of regulatory actions intended to assist market recovery from COVID-19.  If not, changes would be incorporated in broader reforms to MiFID II expected next year for implementation in 2022.

*Irrespective of timing, the likely unbundling reforms would be provisions allowing the ‘rebundling’ of SME research (defined as research on publicly traded companies with market caps below €1 billion) and exemptions for fixed income research and issuer-sponsored research from MiFID II requirements.

*From a UK perspective, an exemption for fixed income research is viewed as the most immediate and potentially impactful change, perhaps requiring action by the FCA to harmonize.  Buy-side panelists expected ‘rebundling’ to be a taboo subject with European asset owners.  Also, it would require the use of RPAs which many European asset managers have shunned, preferring to pay for research from their P&L.   

*Buy-side engagement with the sell-side has surged thanks to the coronavirus, as interactions have increased.  Buy-side speakers said that they were valuing virtual interactions the same as those in-person. However, sell-side speakers were cautious whether this would result in significantly higher research budgets, as many asset managers have been impacted by asset outflows during the pandemic.

*In the US, research balances in CSAs are at high levels after the first quarter and the first part of the second, but they have not necessarily translated to higher research payments as yet.

*Sell-side panelists cited the efficiency and economies of scale in virtual communications with the buy-side caused by the lockdown. However, several also spoke of the adverse impacts on productivity from operating in a virtual world. There were concerns that the quality of research and the productivity of analysts have fallen, and research managers were anxious to get their teams back into the office and interacting in a more physical form. 

*In contrast to interactions, the number of corporate access events and conferences has been declining because of the pandemic.  The virtual events have been generally well attended, but the perception is that quality has diminished.  There was concern that if lockdowns continue into the fall, payments for corporate access will decline, or the buy-side will just go direct corporates without sell-side intermediation.  The challenge for sell-side conferences is to demonstrate value and improve the thematic content of their events. ‘Intimacy’ was a word that was emphasized several times in the panels.

*Research providers cited alternative data as a key research innovation as analysts integrate new data sources into their research.   ESG research is the other high priority for research providers. 

Our Take

Substantive Research’s virtual conference was successful in capturing the level of participation and engagement that past conferences have engendered as topics evolved to other concerns beyond MiFID II. 

The overall impression from the event was that investment research community remains resilient despite the turmoil created by MiFID II and more recent dislocations caused by the coronavirus pandemic.  As such, it bodes well for the future of the conference, whether it reverts to a more traditional venue or remains digital.      

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