There are a few threads on equity research so I’m sure this is of interest to more than a few people (especially on AF). What does the future hold for this industry? The fact that analysts ranks on the sell-side have been shrinking, commissions/margins are down plus the impact of regulation is uncertain does not seem to bode well but I’m curious to know what you think. What happens to those that cannot/do not make it to the buyside?
Why would any of this not impact the buy side equally?
The buyside won’t be impacted as they’re essentially money managers. However, I’m not so sure equity research is going anywhere. Despite controversy, they still provide a valuable function. Most fund companies cannot hire teams covering all the sectors.
So you’re saying that reduced fees don’t affect money managers?
equity research has been a shrinking business. A lot of buy-side managers now don’t want to couple the transactions with buying of research. It will still hang around for sure. It’s still great though to be a master of a certain sector.
There will be some increase in private research shops, but the net effect will presumably be a loss. One question is where the buyside will get their junior analysts in the future. Traditionally, most have tried poaching from the sell side. As that dries up, many will simply have to train their own.
Whats the future of prop trading? http://dealbook.blogs.nytimes.com/2010/08/04/goldman-said-to-weigh-proprietary-trading-spinoff/ “Since a sweeping overhaul of financial regulation was passed by Congress last month, there has been growing speculation about how Wall Street firms would respond to limits on riskier activities that have been been among their the most profitable pursuits. One provision — the so-called Volcker Rule, named after Paul A Volcker, the former Federal Reserve chairman — restricts banks from using their money to speculate on trades in effort to prevent the banks from taking huge risky bets.” On the OP, I think the buyside shops are adding internal equity research divisions to cut on cost.
All the equity research will be outsourced to emerging market countries. In fact this is happening, just 2-3 guys can handle front office desk while rest of the team (at one fifth to one tenth of cost) will stay somewhere in India/China/Brazil/ (africa?) etc etc. At end there will be only buy side analysts and very few sell side analysts in US. That’s one possible scenario.
i honestly don’t think sellside research is getting outsourced to china/india/brazil. that is just crazy.
I don’t think it’s going away, at least for most BB. It’s important to both S&T (client interaction) and to Investment banking (vetting deals).
the markets are efficient. why do we need equity research? Bahahaha
FrankArabia Wrote: ------------------------------------------------------- > i honestly don’t think sellside research is > getting outsourced to china/india/brazil. that is > just crazy. I agree. SS research depends on credibility, which is completely subjective. Let’s say I start a company right now where I am the sole employee. Then, I produce a research report with exactly the same results as a simultaneously-released report from GS. Whose research do you think is worth more money?
back office roles are normally very easily automated. therefore, they can go overseas. though ss research is not exactly brain surgury, you still can’t grab a bunch of dudes and put that together if you want a reasonable product. it takes a lot of learning that comes from communication. relegating those tasks to someone in a completely different time zone is silly. I think SS has been shrinking partly due to the fact htey were too big in the years earlier. NOwadays, you got to have some true skill and not knocking anybody here, but a lot of people use to get those jobs without actually having much experience or knowledge. as we can see, that is changing, for the better in my view.
Good discussion. - I think a significant proportion of the analytical work will move (associate, assistant) leaving mostly relationship management (analysts) - Overall coverage will drop - esp. small caps - More companies per team (analyst) Those in ER/looking to move, please chime in as well.
ohai Wrote: ------------------------------------------------------- > FrankArabia Wrote: > -------------------------------------------------- > ----- > > i honestly don’t think sellside research is > > getting outsourced to china/india/brazil. that > is > > just crazy. > > > I agree. SS research depends on credibility, which > is completely subjective. Let’s say I start a > company right now where I am the sole employee. > Then, I produce a research report with exactly the > same results as a simultaneously-released report > from GS. Whose research do you think is worth more > money? The report will still say GS on the cover, but the people doing it are not in the US. there is no loss of credibility, just cutting the fat.
^ Like the rebook shoe, manufacture in china and have a QC officer in US. While in US, attrition should increase in IB, to supply buy side analysts.
sell side SS is here to stay. for those who arent in ER, this is a relationship business. buy side looks to sell side to build relationships, get management in front of PMs, etc. its not going anywhere in the immediate future.
^Agreed SS is not going anywhere soon, but it is going through a new phase. The reason SS is becoming smaller (from what I’ve read & heard) is due to various reasons: BS shops formed their own internal research departments, SS was too big before and probably the primary reason is regulation. It seems the regulation forcing the division of the IB & research departments threw a wrench into the entire business model.
I’m curious how long SS ER in the US will last if it’s getting outsourced? If the field is diminishing, how long do you think it’ll take to have a significant effect on SS ER. This is for US only and not how well SS ER outside the US is doing. Comments open to all!
to be honest, all non-big bank and non-NA-based wealth management company research is complete garbage. i’ve seen maybe 5-10 different “independent” paid research reports and they are all difficult to read as little time was put into the organization of information, they lack credible models, and their conclusions, ratings, and target prices are often very different from what the BB guys come up with… and if the conclusions, ratings, and target prices are the same, then why are they useful right? someone nailed it when they said that it all comes down to credibility. if two reports are the same, and one comes from GS and one comes for Joe Mohammed, CFA Co., you’re going to trust GS’s assumptions a little more. it will always be worth something to have well researched models defending investment recommendations, both for better insight and lower legal liability. main point, legal liability. if you go to court as an advisor and you provide a buy rec for Enron from GS to go with your past buy rec on Enron, your overall liability drops immediately. if you provide some dude’s investment report generated out of a basement as the support for your recommendation, you’re going to be liable for it all as you’re not using a credible source.