Outlook 2019: Arzish Baaquie, Smartkarma UK01.07.2019 By Rob Daly Editor-at-Large
Arzish Baaquie is a managing director at Smartkarma UK.
What is the next major watershed for the industry?
It will be the LSE/AIM’s planned IPOs. A big theme in the capital markets will be the IPOs that are supposed to list on the LSE/AIM and how the book-runners will ensure that independent analysts are given equal access, in line with the FCA’s ruling that went live in July 2018.
As a result, fund managers will finally be able to have the objective, independent analysis of IPOs. This will see the independent analysts’ viewpoint becoming all the more important and lead to their profiles growing.
Which market structure changes do you expect to see in the coming year?
Continued topsy-turvy performance of the emerging markets, doubtlessly throttled by the China-US trade war; the volatility will present some opportunities for EM fund managers to pick up high-quality assets at discounted valuations but overall, the investment managers will be relatively conservative with their outlook in the first two quarters of 2019.
Also, there will be the continuing battle for the research budget spend: Sell-side incumbents will continue dropping the prices of their written research (the theme of ‘cross-subsidization’ will continue) until the research becomes a proxy for “issuer-paid research.”
Will Innovation drive alpha in 2019?
Investment managers will continue looking out for innovative, differentiated research sources/providers – issuer-paid research is the antithesis of a portfolio manager’s investment process, and thus, independent research will be in demand – independent research providers will need to sort out their pricing models and/or embrace effective interaction/distribution networks.
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.