Raghav Kapoor, a former Religare Capital Markets MD and Citi VP, isn’t optimistic about the long-term career prospects for equity researchers within large banks.
“A bank ultimately can’t expand its research capabilities without hiring, but research analysts are a big fixed cost on the payroll, so scaling up is difficult and expensive,” says Kapoor.
Kapoor admittedly has a vested interest in the problems besetting tradition equity research. His Singapore start-up, Smartkarma – a website offering on-demand Asian institutional investment research for a “Spotify-style” monthly subscription – is trying to take advantage of them.
In 2014, Kapoor left his MD job at Religare in Singapore to found Smartkarma with ex-colleagues Jon Foster and Lee Mitchell.
He says there were two main factors that drove them to launch the research streaming service.
“Firstly, the rise of electronic trading is squeezing margins at banks’ securities businesses, crippling their ability to employ experienced in-house researchers. With the bulk of the revenue tied to trading commissions, the outlook is despondent. If your rates are driven down 90% by tech, your volumes need to double just to keep flat – but they simply don’t.”
Secondly, new financial regulations, most notably MiFID II, are calling for greater transparency in the way banks charge for research.
“The unbundling of research is a natural catalyst for us,” says Kapoor. “Regulations are removing conflicts of interest – so research isn’t tied to corporate finance – opening up coverage of the small and mid-cap companies that banks have been ignoring.”
“When we looked at where there wasn’t much fintech disruption in the market, it wasn’t trading – it was research,” he adds. “Research is clutching on to old-world technology where the last innovation was the PDF.”
Smartkarma has signed up more than 100 “insight contributors”, including Morningstar and Daniel Tabbush, the independent analyst and former head of Asian bank research at CLSA.
Overall, these contributors – who cover about 1,600 companies across 15 Asian markets – receive a 70% cut of monthly subscription revenues, which is then divided up between them according to the popularity of their research.
“We use 23 metrics, including engagement and collaboration, to assess this,” explains Kapoor. “If your research gets cited, for example, this affects your payment. Our system is meritocratic and scalable – unlike that of a large bank.”
Kapoor says he wants to help the “many researchers who have left the large banks recently in Asia”.
“Some have set up small shops but are struggling to make money because they have to spend on hiring people in sales, compliance and operations. This all plays into our hands because we take care of these functions for them – like Amazon provides the marketing and fulfilment for its customers.”
Ex-bank equity researchers aren’t the only providers of research to SmartKarma – the firm is increasingly signing up data scientists and academics as contributors.
“The future of research now lies in data and the structured analysis of unique data sets. But you couldn’t ask a senior research analyst at a top-tier bank to do a social media research for you, for example,” says Kapoor.
SmartKarma’s customers (the firms that subscribe to access its contributors’ insights) include family offices, hedge funds, sovereign wealth funds, asset managers, and a large bank, Societe Generale, which has licenced the company’s platform to give unbundled Asia-focused research to its own customers.
The company employs 23 people between its Singapore headquarters and its new Hong Kong office.
About a third work in tech roles, another third in business development, and the others in jobs such as marketing and finance. Kapoor will be hiring “opportunistically” this year. “I like to recruit people whose skills are somewhere between tech and finance.”
This description could be based on Kapoor’s own career.
He became one of the youngest VPs at Citi in Singapore when he moved there in 2006, aged 24, to work in equity sales.
“I’m a geek at heart. At Citi I started doing tech stuff that would make mundane tasks for my team –from compliance to booking meeting rooms – a bit easier. For a front-office guy, I was at the extreme end of tech savviness,” says Kapoor.
In 2009, Kapoor left Citi to become a partner at newly founded brokerage boutique Aviate Global.
“I was 10 years’ younger than any of the senior partners. Making this move from a large bank to a start-up gave me a fearlessness that is now helping me at Smartkarma,” he says.
Aviate was taken over by Indian finance giant Religare just 18 months after launch.
“I enjoyed working there, but they didn’t embrace our culture because they naturally had a big-bank mindset,” says Kapoor. “One day I was wearing brown shoes at work and my boss told me off, saying ‘it’s not a holiday’. You don’t get that at start-up.”