Buy and sell side research valuation processes: some thoughts from Unbundling Uncovered

It’s clear that the landscape has changed dramatically over the last ten years, from valuation processes which involved ticking boxes in spreadsheets to today’s sophisticated vote and feedback frameworks which incorporate qualitative and quantitative analysis methods to determine the value of research products. 

Panellists agreed that this trajectory has been a positive one. Pushed by MiFID, new valuation processes have dramatically increased transparency and communication between the sell and buy sides. This new way of working is also bringing better alignment, which benefits both parties: the buy side receives better service, and the sell side knows how to provide it. 

A strong theme was the importance of combining qualitative and quantitative research to provide a clear picture of value which both research providers and consumers can agree on. 

Interaction data was a hot topic, and while panellists certainly felt that meticulously tracking interactions wasn’t enough on its own to drive the research valuation process, it’s an important piece of the puzzle. And interaction data too has come a long way – data quality has improved dramatically, boosting its usefulness and building trust between research producers and their clients, providing important context on qualitative feedback. 

Quantitative feedback has grown in importance post-MiFID too, as the buy side seeks to pay for research products and services according to the value they provide, rather than more data driven measures such as interactions, volume, production cost, etc. 

Determining the value of research and paying accordingly ultimately means trying to link particular pieces of research or other services to particular investment outcomes. This is the ultimate goal of the new valuation process. Qualitative feedback on research is a significant aspect of this, but the goal hasn’t yet been reached. Panellists agreed that this is the next big step in research valuation.

Technology is crucial for bringing qualitative and quantitative feedback together to produce nuanced and effective valuation processes and close in on the goal of linking research to alpha generation. But this technology must be granular and extremely flexible. It needs to include a wide, and widening, array of different research products and services, as well as accommodate regional differences in how these are delivered, or even what they are called. Technology tools also need to have scope for detailed personalisation to match the needs and habits of individual firms. For example, there wasn’t a consensus on the panel about whether expert networks should be included in votes – the right tool won’t force alignment on questions like this, but bend to fit each firm’s preferences. 

Ultimately, the discussion of buy and sell side research valuation processes at Unbundling Uncovered provided a picture that is broadly positive. Things have improved, and are continuing to do so. But there were clouds on the horizon: market disruptions, and the potential for difficult times ahead were as present in this discussion as they were across all panels at Unbundling Uncovered. But in a tough environment, determining value is particularly important for firms across both the sell and buy sides to drive efficiency and ride out the turbulence. This means that research valuation processes will continue to develop, and close in on the goal of directly linking research consumption to investment outcomes.