Reflecting on the key insights from the Substantive Research conference last month, I noticed a critical industry shift driven by research budgets. This trend suggests that the substantial downward pressure on research spending may have peaked and is potentially stabilizing.
This leveling-off indicates a period of adjustment within the market, where research budgets could find a sustainable baseline. While recent years saw a notable squeeze on these budgets, primarily due to regulatory constraints and heightened scrutiny, this phase may be behind us, resulting in a more balanced approach to research expenditures.
- A key factor in this shift is the regulatory adaptation to allow payments through Commission Sharing Agreements (CSAs), a change that could revitalize spending on research. This allowance enables asset managers to share commission on trade executions, helping to allocate budgets with more flexibility toward research services.
- Small and mid-sized asset managers, particularly in the UK, may seize this opportunity faster than their larger counterparts, who may take longer to adjust. This change could foster a new wave of investment in research, enabling these smaller players to enhance their market insights and potentially, their competitive positioning.
- Additionally, the regulatory shift creates a renewed focus on Corporate Access, particularly in the UK market. Corporate Access services, which connect asset managers with corporate executives and industry experts, suffered under previous regulatory pressures. However, with CSAs now in play, there is room for these services to regain traction, driving renewed demand and investment.
- For UK asset managers, this could lead to a more active engagement with Corporate Access, particularly if research providers can clearly demonstrate the value these interactions add. These adjustments reflect a broader regulatory acknowledgment of the past challenges within the UK landscape, where prior measures may have unintentionally suppressed the scope and quality of research.
- By allowing more flexible funding mechanisms, the regulations implicitly recognize the importance of sustainable research spending. This regulatory recalibration could enable a more meaningful investment in high-quality research. This benefits asset managers and leads to more informed investment decisions across the industry.
Conclusion:
In summary, the shift in regulation appears to set the stage for a new approach to research expenditures, one that aligns budgets more closely with the value received. This evolving perspective could lead to a dynamic, value-driven market for research, where budget allocations correspond more directly to insights and competitive advantages for clients.
It may also encourage a wider array of asset managers, from small firms to large institutions, to reassess their research expenditures with an eye toward efficiency and effectiveness. This helps to align spending with the actual benefits received in a more sustainable way.
