Price of research set to rise for asset managers
In a volatile equity market, asset managers may now pay the price for having concentrated research spend on analysts from a few bulge-bracket firms.
In April, Substantive Research, an equity research discovery and pricing analytics platform for asset managers, published the results of its latest survey of 40 long-only managers and hedge funds. Based in Europe and the US, these firms have assets under management ranging from $2 billion to $800 billion.
The survey finds that asset managers continue to cut spending on research and to allocate a higher percentage of their shrunken budgets to an oligopoly of bulge-bracket investment banks.
In 2020, fully 51.6% of their research spend went to the top 10 firms. In 2021, that rose to 53.1%.
Now, as rates rise and stocks fall, the old argument that there is no alternative for investors other than to allocate passively to broad equity markets supported by abundant liquidity and negative yields no longer holds.
Heightened volatility takes us if not into a stock-picker’s market then one in which investors can no longer just buy market beta. They must judge which sectors and companies can pass on inflated in-put costs and maintain their margins.