Client Affairs

Going Virtual Dilutes Analysts' Value - Survey

Jackie Bennion Deputy Editor 2 December 2020

Going Virtual Dilutes Analysts' Value - Survey

The value asset managers place on one-to-one interactions with analysts has dropped by nearly 50 per cent since the pandemic began. The medium rather than the message is to blame.

Asset managers are becoming more reluctant to spend big money on research while it is no longer being relayed to clients face-to-face, new figures from a UK-based organisation show.

The price paid for virtual one-to-one interactions with analysts has slumped by 47 per cent since the pandemic began.The price paid for virtual group analysts meetings has also lost its caché, dropping by 35 per cent, according to Substantive Research. The group's study examines how asset managers have changed their approach to research and the amount they are willing to pay during COVID-19 times.

The survey of 20 asset managers in the UK, Europe and the US, with a combined AuM of $4.9 trillion, found that while engagement and demand for research remains high in the crisis, virtual engagement isn't carrying nearly the same value as physical meetings.

The drop in value was seen in asset managers paying annual up front costs as well as those paying for research post consumption, the group said. It also found that at the start of the outbreak, 40 per cent of asset management firms who had agreed a fixed cost for 2020 have since reduced payments to providers, quoting market uncertainty and changes in research consumption as the reasons. What firms actually spend on research was also an interesting reveal, from around $1 million per annum for the small shops to $50 million plus a year at the largest asset managers. Analyst interactions make up 50 to 70 per cent of those budgets, with one-to-one meetings the main payday drivers.

Mike Carrodus, who founded Substantive Research in 2015 as a matchmaking service between fund managers and analysts, said that demand for research products has "soared" during the pandemic causing an "insatiable appetite for data, research and tools to interpret" this uncertain market.

But virtual meetings can't match the value of face-to-face meetings in navigating this uncertainty.

“They lack the value derived from the informal side of physical meetings, where questions and analysis that were unscheduled would still be addressed. Asset managers also recognise the absence of exclusivity from online engagements, meaning that these are valued at a lower rate despite the experience and insight provided," he said. "For these reasons, virtual interactions are also generally shorter in duration, which often leads to a lower valuation and payment.”

Besides the impact of COVID-19, other forces squeezing research volume in general include the European Union's MiFID II regulatory changes, which forced sell-side firms to unbundle research costs, among other changes. However, some new research firms are trying to plug the gap. 

The pandemic has arguably lowered the access threshold to experts generally as many more delegates have signed up to virtual events with no physical travel costs to worry about. But this democratising is having a diluting effect.

It is one reason why Carrodus foresees “a full-scale" return to in-person interactions across the industry "as soon as circumstances permit.”

Once the “initial frenzy” of face-to-face is over, he suggests, the market will self-correct again as managers retain the efficiencies gained from engaging digitally.

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