The Future of Investment Research

Investment Research is an important function of investment decision making. However, over the last few years this function has come under increasing pressure. First, in the early 2000s banks were forced to put up a wall between research and investment banking in order to prevent corruption. Next, the digitization of trading and creation of multiple exchanges for equity trading led to brokerage and clearing costs in a race to zero. These costs previously supported sell-side research. On the buy-side, more and more research went in-house to hedge funds that are attempting to gain a proprietary edge. In the future, these trends will be exacerbated as the industry continues to change.

In the future, both buy-side and sell-side research will be much more accessible. Rather than providing a long, 100 page research paper, buy-side shops will be expected to provide more bite sized data on a more consistent basis. The data will be actionable, concise and compelling enough to make an investment decision. As tens of thousands of funds are created, differentiation becomes more and more important. In addition, the number of information sources means that investors have less time to spend on each individual piece of data. Therefore, research must be condensed into smaller parts.

The second big change is that research will be packaged more like a technology product than as a written document. Banks, funds and third party operators will create software to help distribute research across mobile applications. Investors will spend less time in front of their desktop computer and more time accessing information on handheld devices. Due to this change, research will also need to be created for these formats.

Lastly, research analysts will gain and lose trust quicker than ever before. As data becomes so widely available, investors will rapidly switch from analyst to analyst until they find the one that means their demands. Reputation will be build or destruct overnight.

Overall, the research industry is experiencing significant changes. The trends that were started by changes in technology will eventually impact all parts of the investment decision making process. Research and investment firms that realize there trends and take action will take the lead in the industry.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s