These are not the greatest times for equity researchers. In a recent research note, analysts at Morgan Stanley and Oliver Wyman said revenues in the equities sector have fallen by around 10% globally on a compound basis during every year since 2009. Senior equity researchers who are out of the market tell us that not only can they not get back in, but that they’ve had very few interviews. Worst of all, though, when opportunities do arise, it’s not unheard of for senior researchers to be asked to invest their own money in the company they’re joining.
“There are a lot of start-up operations that have been set up by equity researchers who have left investment banks,” says one senior equity researcher. “I’ve interviewed at a few, but they ask you to invest your own money – usually around £40k-£50k before they’ll hire you. The idea is that you’ll be incentivised to work hard and that in a few years’ time your investment will be worth a lot more.
“Personally, I didn’t go for it,” he adds.
Oliver Rolfe, an equities headhunter at at the Spartan Partnership, says it’s quite common for senior equity researchers joining research boutiques to be asked to contribute their own money to the new venture. “If a boutique is specialising in research and needs seed capital, it will often ask new hires to contribute £20k-£50k,” says Rolfe. “The figures can be far higher if a firm is trying to build a trading platform.”
Which boutique firms have been asking for an upfront investment from senior hires?
One researcher alleges that he was asked to invest by Whitman Howard, a boutique firm set up by an ex-Numis head of equities and former director of Hoare Govett. The firm did not respond to a request for comment. Boutiques like Consumer Equity Research, set up in 2009 by Seth Peterson, a former Citi equity research analyst and James Targett, a former consumer analyst at Goldman Sachs, also asked senior employees to put in their own money. Consumer Equity Research was dissolved after Peterson and Targett found new roles.
If boutique firms are asking for cold hard cash, why not try finding a new role at a big bank instead? After all, JPMorgan hired three sector heads of equity research earlier this month, and both Numis and Quilter have been hiring.
Unfortunately, it’s not that easy. One redundant and once-senior equity researcher who’s been out of the market for several months told us he’s had hardly any interviews and that the sector is in disarray. “I’ve been covering my sector for 13 years and have been very outspoken and very accurate in my calls. People seem to think that’s not worth anything,” he says.
Simon Maughan, head of the sector strategy group at Olivetree Securities, says the equity research sector is contracting rapidly. “No one pays for the equity research product,” says Maughan. ‘It’s been given away for free for far too long. The market has deconstructed the role of the research analyst into its component parts – professional corporate broking and liaison people can offer corporate access, Bloomberg and Reuters can offer results previews and reviews plus the best consensus model; you don’t need the equity researcher for much any more.
Maughan points to the case of Rio Tinto. “There are 32 people covering this stock in London. Say you need a choice of stock specialist, sector guru and data specialist, that’s still around 80% too many.”
In the circumstances, there may be advantages to paying up to £50k to secure a role. Rolfe says many research boutiques are set up by ex-banking analysts during difficult times and dissolved when the market picks up. Upon dissolution, you’ll get your money back and will have the advantage of having remained in employment throughout the downturn.
One former owner of an equity research boutique who asked not to be named because he’s now working for a large bank, said it’s quite reasonable for boutiques to ask for an upfront investment from senior hires: “If it’s an entrepreneurial venture and you’re trying to become a partner, it’s quite reasonable that you will put your own money in. The equities business isn’t exactly booming right now and everyone’s fighting for a declining pool. It helps if partners have a real sense of ownership.”
Redundant equity researchers who face a £20k- £50k hurdle before they can get back into the market might argue otherwise.