Research functions in UK investment banks are changing – and not always for the better. While some investment banks are hiring in the build up to MiFID II – which will require banks to separate research from other trade execution costs – some senior researchers believe that sell-side research is being diluted.
One of these people is Phil Rush, the former chief UK economist and senior European economist at Nomura. “Previous and future regulatory reforms are challenging the old research model within banks. Quality is being reduced amid cost-cutting, to the detriment of clients. That is frustrating for all investors, while smaller ones may find themselves cut off over the next couple of years, despite valuing research,” he says.
Rush has just set up his own economics consultancy for investors in UK markets called Heteronomics, after nine years working for large investment banks. The idea, he says, is to provide high-quality insights that are available entirely separately from the trade execution process, aimed at smaller investors. This is in contrast to some large investment banks which have hired in senior analysts with the expectation that clients will only pay for in-depth research.
“There seems to be space in the market for quality insights that are available entirely independently of trade execution,” says Rush. “And it is possible to operate with a vastly smaller cost base outside of a bank, which should ensure it is more profitable too. I doubt I will be the last person to go down this route!”
Nomura’s research function in Europe has been drastically pared back. When it announced in April that it was closing its European equities business, it’s highly-rated research team flooded on to the market. Some have taken roles at other investment banks – Jon Peace, an MD focused on banks research landed at Credit Suisse, while David Hayes, an specializing in consumer goods, went to Bank of America Merrill Lynch.
However, others have decided to go it alone. Des Supple, its global head of market research, left earlier this year to start Event Horizon Research. Meanwhile, Jens Nordvig, who was Nomura’s head of fixed income research in New York until earlier this year, is now running a big data firm targeting hedge funds called Exante Data.
Some have talked up the research job market in London recently, but the reality is that banks are spending less on research and senior people are looking for new career paths. MiFID II requires that banks separate their research costs, rather than bundling it together with other trading execution cost – research by Edison Investment Research and Frost Consulting suggested that budgets for equity research teams have fallen by 50% as a result.
J.P. Morgan’s deputy head of European equity research, Peter Elwin, left the bank for a role leading research at the Universities Superannuation Scheme. Meanwhile, there’s been a resurgence of researchers moving into investor relations. James Collins, a retail research analyst at Stifel Financial, is now head of investor relations at J Sainsbury in the UK and Richard Burden, a managing director in insurance research at Credit Suisse, is now head of investor relations at Zurich Insurance.