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Regulation, AI, restricted budgets: investment research in 2024


  • Substantive Research CEO Mike Carrodus and Singletrack CSO Brijesh Malkan discussed the trends and challenges facing investment research recently
  • The full implications of regulatory change are still uncertain but there are clear paths emerging
  • AI will have a significant impact on research services but the role of the analyst is still critical
  • The desire to link research spend to value and investment decision will rise as the search for alpha becomes harder 
  • New formats and delivery methods might unlock new buy side budget, but increased spending on tradition offerings is unlikely

Recently Singletrack CSO Brijesh Malkan sat down with CEO of Substantive Research Mike Carrodus for a wide-ranging discussion reflecting on the state of the investment research market, and what might happen next. As we head into 2024, here are the key themes they identified.


The potential for regulatory alignment and implications on research spend remain uncertain as the industry begins to examine optionality. While costs may be moving away from P&L and back towards client money, the transparency and valuation framework of unbundled research won’t go away. Mike Carrodus says, ‘We haven’t been in such an uncertain period for the research industry since pre-MiFID II,’ and the proposed new direction for regulation only amplifies this uncertainty: ‘It’s not entirely certain how anyone will respond to new rules, because the new rules are softening, not tightening. Softening is an option, and this optionality creates even more confusion.’

Are there any likely outcomes at this stage? ‘Not much might change,’ says Mike, ‘that’s definitely a possibility.’ But change of some kind is more likely. ‘There could be this strange, hybrid world for a while where some firms with particularly good reasons for taking advantage of new payment optionality are returning research costs to their end investors, but then a lot aren’t.’ At the moment, the main stumbling block seems to be the need to communicate any change with clients. This is an issue which the buy side ‘has not properly grappled with,’ Mike observes.

AI and investment research

The impact of AI on investment research will be significant but is not settled yet as firms come to terms with the new technology’s potential and shortcomings. At Unbundling Uncovered some claimed it will make discovery easier, some argued just the opposite. Regardless, it’s clear that the integration of new technology is a pressing issue for the industry. ‘Data and technology [are] at the core of buy and sell side processes in a way they weren’t even a year, even six months ago,’ says Mike.

Are industry participants concerned about the potential disruption of AI? ‘There wasn’t any fear in the room [at Unbundling Uncovered] that AI is coming for jobs. I thought I saw a good sense of excitement that AI will augment what people are doing and support them,’ says Brijesh. Mike agrees, and reflects that job losses ‘already happened, MiFID II did it, so actually now what you’re looking at is presumably some leaner and meaner teams that could use some technology to scale.’

There is potential for difficulty, however. Unbundling Uncovered panellists suggested that ‘AI might actually make it more difficult for portfolio managers to find what they need,’ Mike recalls. ‘AI will help increase the amount of content coming out from fewer people, and actually there’ll just be all this research out there, some of which has been created entirely by AI, and suddenly everyone is going to get flooded.’ It’s a possibility, but not a certainty. 

Another key difficulty which is often forgotten is the impact of AI tools on tasks which, while perhaps not efficient, played a key role in training the next generation of investment research professionals. Mike explains, ‘if you have a process where you can get your people to a place where the rockstar, highly-ranked analysts are right now without them having to undertake processes and tasks which can now be handed over to technology, then that’s a really big win. But I’m not sure about that. And that’s an obstacle on both sides.’

Linking research and investment outcomes

Research attribution re-emerged as a topic of discussion late last year, and this may be due to the new market conditions – the pressure to justify research spend has only increased.

As Brijesh remarked, ‘In a more volatile market, research will have to prove its worth.’

Mike links this new interest in attribution with a new focus on buy side valuation and feedback more broadly. But, he warns, ‘That attribution is an internal thing. [The buy side] don’t want to have to explain that to an end investor.’ Rather, buy side firms ‘want attribution to better understand the behaviour of their investment professionals and how they can help them.’ There are ways this can be fed back to the sell side without the risk of creating impenetrable bureaucracy or unsustainable levels of dialogue, but a balance must be found.

Finding new budget

Unlocking new budget for research might be possible by offering the buy side new and innovative formats and delivery methods, or new asset classes. But an increase in spend for traditional offerings is unlikely. 

‘Overall research payments have gone down about 6% on both sides of the Atlantic,’ says Mike, and points out that Substantive Research surveys have uncovered huge pricing discrepancies: ‘There are firms out there paying double for the same provider, for the same products and services.’

In the last few years it has also become apparent that more types of service are being included in the research bucket – and therefore the research budget – than previously. As Brijesh points out, many now include any content which feeds into investment decision-making, ‘whether that’s research reports, ESG, an API feed of analytics, alt data or expert networks.’ And this in turn has an effect on spend: ‘There is a budget that supports the investment decision, it will converge and everyone’s fighting for the same dollars.’ 

How can firms try to increase spend? ‘Don’t expect this market suddenly to flip and then there’s going to be loads more research dollars,’ says Mike. ‘There might be some more research money as a consequence of this, but […] there will only be new money for new coverage on new things to address new mandates.’ It’s a challenge to find new value, but it is possible, Mike says, and it’s the key to finding new budget.

With so much uncertainty fed by regulatory change, tech innovation and continued volatility and pressure in the market, 2024 is set to be another challenging year for investment research, but there are opportunities to be found. To find out how Singletrack can help research providers meet the challenges and realise the opportunity, get in touch.



Published: 14/02/2024