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© Pure Research Private Limited | Insights & Viewpoint| www.pureresearch.co
Mid-sized European banks should rethink
their Investment Research Strategy
ANUPAM ASHISH
Co-Founder, Pure Research Private Limited
1 © Pure Research Private Limited | Insights & Viewpoint| www.pureresearch.co
Insights & Viewpoint
Mid-sized European banks should rethink their Investment Research
Strategy
The investment research industry is evolving rapidly post the 2008 financial crisis and a large part of
this evolution is being driven by regulatory changes. Regulators are trying to level the playing field in
many areas by improving transparency and monitoring in the investment management industry.
“Unbundling of Research” is one such measure, which has been much talked about in the past few
years and might force several sell-side research providers to change their investment research
strategy.
Unbundling of research is here…
In the bundled regime, sell-side firms were producing research and investment ideas and distributing
them for free to buy-side firms (asset managers). If asset managers were satisfied with the research,
they could ask the sell-side firm to execute the trade for which the sell-side firm charged a “bundled
commission” which paid for the research as well as execution of trade.
However, unbundling of research – as proposed by the new MiFID II regulations in Europe which will
now come into effect from January 2018 – can disrupt this arrangement. The new regulation might
make it mandatory for asset managers to pay for research and execution separately. The guidelines
on how this new regulation is to be implemented are still in the works, but fundamentally, such a
regulation will change the competitive dynamics of the investment research industry in Europe.
…and it will hit small and medium investment banks the hardest
We believe that mid-sized and regional investment banks will be worst hit by this regulatory change,
which prohibits the use of trading commissions to pay for research. According to Greenwich
Associates, total European institutional equity commission volume paid in 12 months ended Q2 2015
was EUR 3.4 billion, out of which about 52% was for research. This means that research and trading
constitute approximately equal parts of the bundled commissions, and competing separately in both
these markets can be a tough ask for the small and medium sized investment banks.
In the execution market, these banks will be directly competing with their larger peers, which
means they will need additional technology investments into their execution platforms, and
keep execution costs competitive in order to compete effectively.
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To sustain in the research market, they will have to compete with their larger, global
counterparts on one hand, and niche Independent Research Providers (IRPs) on the other. As
a result, they will need to improve their research quality, coverage and distribution, while
keeping the costs competitive.
Therefore, its time for them to change their investment research strategy
However, the mid-sized investment banks can also use the regulatory changes brought about by the
impending MiFID II regulation, as an opportunity to redesign their investment research strategy. They
can start by looking at what their larger peers did more than a decade back – engage the right offshore
outsourcing partners to bring in scale and efficiency into their research functions.
Finding a competent offshore outsourcing partner who can help them scale their research coverage
and uncover niche investment themes at a competitive price can really be one strategic move that can
enable them to remain competitive in the investment research market. Off-shore research teams can
bring-in the following advantages for mid-sized investment banks:
Expand research coverage without investing additional fixed cost or administrative time in
on-boarding and managing your team.
Access experienced analysts and teams at competitive prices as the geographical cost
arbitrage still remains in play.
Spend more time on client development and distribution of research.
Benefit from the highly efficient research processes and frameworks, developed by
outsourced investment research providers over the years.
Leverage efficiency in research costs for technology investments in making execution more
competitive.
Bottom-line: While the investment research market is getting tougher for mid-sized investment
banks, it also presents an opportunity for them to improve their competitiveness. With the
implementation of MiFID II regulation postponed to January 2018, now is the right time for mid-sized
European Banks to work on their research strategies and start identifying research partners that can
help them stay competitive in the unbundling era.
3 © Pure Research Private Limited | Insights & Viewpoint| www.pureresearch.co
Insights & Viewpoint
Anupam Ashish is the Co-Founder of Pure Research Private Limited, a customised research firm with
offices in New Delhi and London. Anupam and his team work with clients worldwide to deliver high
quality customised financial research services to buy-side as well as sell-side firms.
Disclaimer: Although the information contained in this publication has been obtained from sources
believed to be reliable, Pure Research disclaims all warranties as to the accuracy, completeness or
adequacy of such information. Pure Research will have no liability for errors, omissions or
inadequacies in the information contained herein or for interpretations thereof.
Image courtesy: David Iliff
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About Pure Research
Pure Research provides customised research and business intelligence to leading corporates, public
sector organisations, financial services firms, and professional services firms. The company specialises
in providing high quality procurement and supply chain intelligence to CPOs and procurement
professionals worldwide. Analysts from Pure Research work as an extension of its client’s procurement
teams to deliver high quality insights on suppliers and supply markets. The company has offices in
London, U.K. and Delhi, India.
If you are looking for more information about Pure Research’s services and experience of working with
procurement teams, you can visit their website, contact them via email at contact@pureresearch.coor
call them at +44 (0) 20 7193 9497.
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