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A global model and the tech revolution: thoughts from Unbundling Uncovered New York 2024

Insights

This summer the Singletrack team were proud to once again sponsor Unbundling Uncovered, the biannual conference covering all things investment research. If you missed this year’s gathering in New York, here’s a look at the key topics.

  • Post-MiFID regulatory change may move the industry towards a simplified, global model, which should increase research production and unlock spend
  • For now research budgets remains tight, but variability can be found in relationship-focused services such as corporate access and technology to improve consumption
  • AI will improve efficiency for production and consumption, but firms will focus primarily on co-pilot technologies for now

A global model?

With investment research regulation in the UK and the EU still evolving, and the potential for convergence with the US presented by optionality, the possibility of a globally unified research payment model was a hot topic on the day. From UK and EU-based players, there was a sense of frustration with the upheavals of the past decade: MiFID demanded big, structural changes, but after only eight years, it is now all but unwound. 

Panellists agreed that the underlying issue is transparency for the end investor. While perhaps that need not mean the exact same payment and transparency structures across the globe, a sense of equivalence or fairness will be essential. From the client perspective, this will also save a lot of hassle for those operating across different jurisdictions. More than one panellist mentioned clients requesting that they implement whatever arrangement will work everywhere. This has a few obvious knock-on effects, including that whichever model requires the highest standards of transparency is likely to become the international standard, or at least be very influential in any eventual convergence.

There was consensus that the developing legislation in the UK and the EU should avoid being too prescriptive – this will allow enough flexibility that the new rules can be applied by a wide range of firm types. Interesting, too, was the point that it isn’t just regulatory change that separates the UK/EU and the US on investment research: there’s also a cultural difference. The UK/EU tends to see research as a service firms pay for, while in the US, the outlook is far more focused on alpha generation. Will this cultural misalignment stand in the way of international consensus?

As market conditions remain difficult, performance is still a key part of the conversation. With the prospect of asking clients to pay for research still looming for many firms, it’s clear this question will be far easier to raise when performance is stable or strong. There is optimism too: a more globally unified landscape may increase research production and unlock spend.

Research valuation

With optionality now in play, many panels touched on whether research pricing should be stable regardless of payment model. But is this realistic? A few speakers pointed out that certain payment frameworks have higher costs to the user than others, which makes this question more complex.

Margins remain tight and research spend is down overall – a trend which has been present for the past couple of years. We heard again that more budget might be available for new offerings, including the potential for more small-cap coverage which regulators are targeting. Spending for services based on human interaction rather than traditional written research, especially corporate access, is up, and most agreed that ultimately spending variability is most easily found in relationships with high-performing analysts and salespeople. One notable exception is that there were many mentions throughout the day of research distributed as podcasts: this seems to be one area where a tech-driven format innovation is generating buzz. 

The quest for a simplified global model might appear to mean a switch to P&L, standardised pricing, purely quantitative valuation processes, etc., but panellists also argued that while this standardisation would of course make remuneration completely transparent, it risks making the value of service and research product more opaque. Payment variability is also its own mode of communication. Relationship-focused services and the right technology tools to improve research consumption will be significant themes in the coming months.

The impact of AI

Perhaps the most universally present topic of the day was the impact of AI and machine learning. While this has been a key issue for a couple of years, there was a sense that the conversation has now moved on: there’s a public acceptance that generative AI is not just a hype bubble, it’s a tool we’ll soon see in widespread use.

This is driving the importance of machine-readable content, both in terms of the data and research products, and across other areas such as buy side feedback. A few panellists expressed the feeling that the buy side no longer merely wants the report, they want the data which underpins it, so they can incorporate it into their environment and run their own analytics. 

Where will we see the biggest impact when it comes to AI? Panellists broadly agreed that it will be geared towards productivity gains and co-pilot technologies rather than the generation of the research product for now. Firms are keen to automate low-value tasks and make the most of their data, but for the sell side, the analyst always sits between the technology and the client.

From the buy side perspective, this is a good thing: many panellists acknowledged that the buy side is overwhelmed by how much content is sent their way, and that means that a real person is more valuable than ever. Despite the dizzying promise of generative AI, there’ll always be a person in the loop. For now, it’s about augmenting the skills of that talented person, not replacing them. 

If you’d like to discuss any of these topics further, please get in touch.

Singletrack

Singletrack

Published: 01/07/2024