Nearly five years ago, European regulators implemented Mifid II to “decouple” equity research from trading fees. The reason was to prevent investors from indirectly paying for excessive or unnecessary research. Since then, spending on equity research has plummeted. However, the decline in the number of independent analysts suggests an unintended risk to market efficiency.
a joint venture The trend continues with a combination of cash equity and investigative capabilities between Alliance Bernstein and Societe Generale, which was announced Tuesday. The former’s $627 billion fund management unit is unaffected. The transaction combines a well-established independent research brand with SocGen’s full-service equity stake in his franchise. A French bank controls 51% of him.
SocGen hopes to expand its US investment banking services as part of incoming CEO Slawomir Krupa’s plan to turn around a struggling French bank. AllianceBernstein’s research brokerage business, which is primarily focused on the United States, highlights the price impact of European investment regulation Mifid II on research.
European equity research spending hit a decade low of £640m in 2019, half of what it was in 2015, according to Bloomberg data. Mifid II required fund managers to pay for research separately. Since then, spending has increased moderately, but with an increasing share to the largest institutions. From 51.6% in 2020 to 53% in 2021 went to the top 10 providers. Top 3, said Mike Carrodus of Substantive Research.
Previous prejudices against scale that already existed through trading continue in research alone. As such, independent research institutes are marginally profitable and are priced out of the market by effective cross-subsidization of research within the largest banks.
A sustained bond market bear market and associated equity volatility could turn demand on active portfolio managers who want independent research. That said, prices will continue to be under pressure. Some specialty independent banks can maintain their pricing power, but the trend towards consolidation with larger banks should continue.
Lex wants to know what readers think about this topic. Was the Mifid II regulation on research segregation just a boon for the largest investment banks?
https://www.ft.com/content/6c2c9f22-dcc1-49e5-b59d-e5bf549381bf SocGen/Bernstein: Research partnerships highlight independent struggles