Outlook 2017: Scott Rosen, Visible Alpha01.04.2017 By Rob Daly
Scott Rosen is CEO of investment research technology firm Visible Alpha.
How will research delivery change in 2017?
Before the rise of the Internet, Regulation FD and the proliferation of investor-oriented data services, well-connected and well-funded brokerage analysts enjoyed a dramatic information asymmetry with their buy-side clients. Simply analyzing and reporting on the data they had readily available made their research worth paying for. This opportunity for information arbitrage has waned, and sell-side analysts now need to provide deep and differentiated insight in order to be useful to their clients.
What was a long-term trend, however, is now coming as a flood. Changing economics are causing investment managers to become much more cognizant of the holistic costs of the sources of intelligence they rely on to help create sustainable alpha. A combination of regulatory changes in Europe, the continuing rise of passive management and margin pressures from an increasingly competitive market are now forcing active managers to focus much more closely on performance and operational efficiencies, including increased scrutiny of the return on their research outlays. Just as portfolio managers are progressively incorporating more quantitative elements into their fundamental analysis, so too will broker liaison personnel be required to find hard data to augment the traditionally qualitative valuation of the research services they consume.
Faced with intense competition for clients’ tightening wallet, sell-side firms will be looking to differentiate their research offerings and prove their value while, at the same time, gaining efficiencies in and better control over the distribution of their intellectual capital. Understanding how clients are consuming their research and valuing their services through a more transparent broker review process will enable the sell-side to optimize their content creation and distribution and provide the buy-side with tailored information and services from which they can gain more valuable insights.
A select group of bulge-bracket brokers have gained market share.
They will co-operate on fixed income, currencies and commodities academic research.
Covid, ESG and a growing focus on data has significantly churned market share.
Machine learning promotes significant efficiencies in portfolio management.
Institutions are prioritizing dark liquidity in their selection of algo providers.