RSRCHXchange, the institutional research aggregator and marketplace, has made a strategic hire in the US as new rules on unbundling in the European Union are affecting the global market.
The firm has hired Harold Bailey III as managing director, North American sales, due to demand from the region. Bailey worked in trading functions at RBS and Lehman brothers, and more recently for research provider Mergermarket. RSRCHXchange allows asset managers to read, pay for and monitor research services from banks, brokers & boutique providers in one place and maintain an audit trail in accordance with the MiFID II requirements.
Vicky Sanders, co-founder of RSRCHXchange, told Markets Media that 15% of clients are from the US and 40% of the firm’s research providers. RSRCHXchange has 220 research providers on the platform and is in the process of onboarding another 60.
Sanders said: “In the US we have a lot of non-MiFID II clients, hedge funds who want one point of access to information, and also queries from asset managers who receive more than 1,000 research emails a day. End-investors are also increasingly asking fund managers about their research policy.”
MiFID II, the regulations coming into force in the European Union at the start of next year, requires fund managers to either pay for research themselves from their P&L or to use a research payment account, where the budget has been agreed with the client. Asset managers can designate a third party to administer the RPA on their behalf but still have to track their consumption of research and assess its quality. Even though MiFID II only applies to the EU, it is having global implications as many US asset managers have European operations and asset owners are likely to want greater fee transparency on a global basis.
Nicholas Colas, co-founder of independent provider DataTrek Research, told Markets Media that client research budgets have been under pressure for a decade or longer, and MiFID II is an important catalyst that gives them more price transparency to accurately manage that reduction in spending.
“Since many large US managers have European operations, they will be able to directly compare what they pay for similar services in both markets,” he added. “They may even want to homologate their business practices around the stricter MiFID II requirements.”
Colas is a well-known analyst who was previously director of research and chief market strategist for Convergex Group. Prior roles include analyst and portfolio manager at hedge fund SAC Capital, reporting directly to company founder Steve Cohen, and senior equity auto analyst at First Boston (now Credit Suisse) between 1991 and 1999.
“The appetite for independent research has been growing for years and that is only accelerating now,” he added. “Clients want access to original and actionable ideas, and they know these come from all sorts of sources.”
Colas continued that clients are looking at alternative sources to hone their investment process. DataTrek Research uses a wide array of data from Google Trends to a variety of less well-known information sources for specific industries.
Many of the larger asset managers, such as BlackRock, have chosen to pay for research themselves from their P&L and Colas expects this to cause research budgets to shrink modestly.
“Just as important, they will make some hard choices between different vendors,” he added. “Instead of paying 10 research-producing brokers €500,000 each (total €5m), they may chose to pay six brokers €750,000 euros (total €4.5m). This will make them more important to the ones they care about, but make the overall pie 10% smaller.”
Sanders explained that asset managers paying for research from their own P&L are demanding tools that allow them to asses the value of the research they are buying.
“Some asset managers have announced they will pay for research themselves but we have found they have been asking for more data on their research consumption,” she added. “They are also keeping back part of their wallet to purchase extra research they might need if markets change.”
In addition to expanding in the US, RSRCHXchange has launched new mobile and desktop apps and a range of new research management functionality.
“We have been improving predictive search so clients can find research using as few clicks as possible,”added Sanders. “Managers were saving PDFs in folders on their desktop or dragging and dropping emails and the virtual library automated this process.”
The new research management tools enable users to set up a virtual library, where reports can be easily organised and filtered into fully customisable folders based on criteria such as watchlists, research providers or searches of free text. Improved email alerts ensure compliance with the MiFID II inducement rules, as investment professionals are not allowed to receive free research.
The firm has also launched a chat bot, allowing users to easily access reports by voice, via Symphony, the messaging and collaboration platform.
Sanders said: “With the funding we secured from NEX Group earlier this year we have invested heavily in our development team. We’re able to continuously add new features which meet either new regulatory developments or the evolving business needs of providers and clients.”