Substantive Research, the UK-based research and data spend analytics provider, recently published a survey showing that as a proportion of AUM, US asset managers’ research budgets rose 15%, while European budgets rose a modest 4% during the first half of 2024.
Key Survey Results
In the first half of 2024, US research budgets rose 15% as a proportion of AUM, while European budgets rose a more modest 4%. However, in monetary terms global research budgets increased by 2.2%, marking a turnaround from the recent period of research budget cuts seen over the past few years.
This compares to Substantive Research’s 2023 findings where research budgets in the US increased as a proportion of AUM, and dipped only very slightly in the UK/EU by the same measure. However, in monetary terms, research budgets still fell by 6.5% globally as AUM was down across the universe surveyed.
Brokers still dominate research budgets, as 85% of total research spending in 2024 went to them compared to 86% in 2023. In 2024, spending on Independent Research Providers (IRPs) and Expert Networks remain unchanged at 8% and 2% respectively of annual budgets on average. Buy-side spending on tools and analytics solutions grew to 5% of total research spending in 2024 from 4% in the prior year.
The concentration of research budgets rose very slightly in 2024 as 54.9% of research spending was paid to the top 10 brokers, up from 54.8% in 2023. This will be a key metric to monitor in future to see if the FCA’s reforms spur greater competition as desired.
Mike Carrodus, CEO of Substantive Research, commented on this year’s survey findings saying, “We saw last year that research budgets were stabilising and now we have the confirmation that the trend has turned. However, when compared with six years of price depreciation, this recovery does not take us anywhere near where research spending was pre-MiFID II. What this does do, is set the scene for the FCA’s new rules later this summer, with the key question being ‘Will the new FCA freedoms accelerate European research spending up to a US level and trend ahead? Much will depend on the reaction from the asset managers’ end investor clients, and even if research costs do end up chargeable to asset owners once again the new procurement rigour in research valuation and payments from the buy side is going nowhere. If this market is to reflate materially, there will need to be new demand for new asset classes, and new supply required to justify additional payments in future – a change in funding will not arbitrarily drive research pricing back to pre-MiFID II levels.”
The results of this year’s survey were drawn from participants at 60 asset management firms; 60% headquartered in Europe and 40% headquartered in North America; total AUM of these firms represented in excess of $20 trillion; 75% Long-only asset managers and 25% Hedge Funds.
Our Take
Substantive Research’s 2024 survey on buy-side research spending provides a glimmer of hope for sell-side and independent research providers, as global research budgets rose modestly higher in 2024 after shrinking for a number of years in the wake of MiFD II.
The big question for the research industry is whether the FCA’s proposed changes to MiFID II in the UK (and the hoped for changes in the EU), will support a continued rebound in buy-side spending on sell-side and independent research? We agree with Mike Carrodus’ assertion that even if asset managers’ clients allow them to once again use commissions to pay for third-party research, we doubt that overall research spending will return to pre-MiFID levels, unless investor demand changes significantly.
Given the continued growth of passive investments, and the increased appetite for AI-driven investment tools, we suspect that buy-side budgets for traditional research services will remain under pressure for the foreseeable future.
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