At Smartkarma, we pride ourselves on our community’s unmatched level of collaboration and our ecosystem of seasoned analysts, cooperating from across the globe to debate and provide unconflicted research insight into Asian markets.
We talk about what a unique resource this level of collaboration is to our readers. Smartkarma isn’t like other research providers in the space focused on selling disparate reports; these firms leave buyers helpless, and forced to navigate virtual malls stocked with endless shelves of homogeneous product. Smartkarma is different because it’s a think tank at its core; a dynamic environment for sharing insight, creating context and themes, and discovering great insights together.
Or, so we say…
It all sounds great on paper, an idealised vision that looks good in marketing material.
But is there more to it than that? Does collaboration from the world’s leading experts truly produce ‘market-leading’ insight? Or, is it just another clever marketing trick designed to cast ourselves in a different light than our competitors?
In this piece we speak openly about what collaboration looks like in practice, what it has taught us, and consider its implications beyond Smartkarma.
Let’s start by looking at a recent case study.
Pelham Smithers Associates “PSA”, a UK-based independent research firm with an expertise in Japan, recently published a report on Smartkarma titled “The Best Chart I Have Ever Seen….. Well This One Ranks High”.
The chart in question was a seemingly innocuous dataset from fellow Smartkarma Insight Provider, Amareos. PSA wasn’t exaggerating its significance though. The chart neatly displayed a possible breakthrough, a potential new leading indicator in the Japanese equity market.
The focus of Amareos’ original article titled “Caveat Venditor” was on the outlook for global fixed income markets.
PSA saw the chart, which quantifies the “tone” of public perceptions around Japan’s economy in real-time, in the Amareos article posted on Smartkarma. It was a product of crowdsourced sentiment analysis derived from millions of mainstream and social media posts, created by the brilliant team at Amareos.
PSA’s recognised the pattern in the chart was highly correlated to a chart of the YoY relative performance of Japan’s biggest equity index, the Topix.
So, PSA decided to dig a little deeper.
They found that the two bore striking similarities. But more than that, their research indicated a steady and consistent change was occurring; a change that has been occurring slowly over the last 15 years, as social media rose from its infancy years into the powerful data mine that it is today.
The change they identified was a doozy.
PSA found that historically sentiment lagged behind the market. The “experts”, the great and the good, would begin to sell, and over time, this negative sentiment would permeate through to conversations taking place on “main street”. However, as social media’s uptake grew and the voice of the crowd got louder, the gap narrowed. And Narrowed. And now it has just crossed over.
As Ryan Shea, Head of Research at Amareos notes,
“Financial professionals have long understood that emotions affect financial markets in a predictable way but incorporating such inputs quantifiably into a research or investment process used to be impossible. Now, thanks to technological innovation the “crowd” can be objectively measured”.
Shea goes on to add:
“The organic collaboration between ourselves and PSA is very exciting. It shows that crowd sourced sentiments can be applied in numerous ways to help investors boost returns via alpha-generation or risk mitigation. What’s more the Smartkarma community of financial professionals provides the perfect vehicle to exploit this new data source”.
The collaboration that produced this insight is cause for excitement here at Smartkarma. This potential breakthrough would never have been discovered and shared without a community like ours. And critically, without a way to collaborate and share knowledge and expertise, PSA may never had been able to connect the dots drawn by Amareos. Their respective works would be no more than two disparate PDFs sitting on a virtual supermarket shelf.
This raises an interesting question. If a model exists that changes a competitive and protective industry like Financial Research into one where ideas (and the economics that stem from them) can be shared to help produce entirely new breakthroughs, can the same occur in other competitive, economically driven industries? For instance, Pharmaceutical Research, Material Science, or Renewable Energy?
A secure, technology-based platform that creates a collaborative environment for experts to publish and distribute their work, debate findings and opinion, and which fairly operates by sharing the economics of that research, must surely be a step in the right direction.
Written on 28 September 2016 by
JON FOSTER, Co-Founder of Smartkarma
Smartkarma brings transparency and efficiency to the institutional research market with its collaborative investment research platform
Singapore – September 23, 2016 – Smartkarma, the premier provider of collaborative solutions for investment research, has won the Futures and Options World (FOW) Asia Award for Best New Technology – Trading and Execution. The win further solidifies the company’s position as a market leader, delivering innovative solutions to help transform the investment research industry.
Smartkarma was recognized for its unique marketplace model, which is changing the economics of the investment research industry. Smartkarma clients are provided unlimited access to research from over 70 contributing firms whom offer unconflicted and unmatched analysis and transparency into the Asian markets, helping global institutional investors drive their investment strategies.
Smartkarma’s unique platform not only delivers a high quality, efficient and cost effective solution in response to the lack of transparency and efficiency in the status quo, it helps investors meet evolving regulatory requirements under MIFID II. The Smartkarma platform also facilitates collaboration amongst research providers, breaking down the traditional silos that have existed in the market. Smartkarma fosters a community amongst research professionals where knowledge and expertise can be shared, resulting in new insight and a higher quality research product for clients. Its proprietary technology, including its predictive search engine, curates every piece of research and matches it to investor mandates, helping clients manage portfolio risk and stay abreast of evolving financial issues.
“FOW’s recognition validates our efforts to spark a revolution in the creation and consumption of investment insight,” says Raghav Kapoor, CEO and Co-Founder, Smartkarma. “The industry is in need of change and we are honored that the Smartkarma platform has been recognized for helping it achieve those goals.
The FOW Asia Award for Best New Technology – Trading and Execution, recognizes a company which has solved a problem creatively, opened up new possibilities, or changed the way participants approach the market.
As a trusted information source, Smartkarma provides unconflicted and unmatched analysis, transparency and context into the Asian markets, helping global institutional investors confidently drive their investment strategies. Unlike traditional research companies, Smartkarma combines intelligence from the world’s premier analysts, academics, data scientists and strategists in one unique ecosystem. This customizable platform helps investors optimize research spending and enhance returns while accessing the widest range of global analysis of the Asian markets available.
We are on a bold mission to change the way market participants engage with research. By creating a new model for investors to collaborate, add and extract value from our tested and uniquely positioned global community, we are changing the research landscape for global investors. For more information visit us at www.smartkarma.com.
Articulate Communications for Smartkarma
Email: [email protected]
Phone: +1 212 255 0080
The European investment research market is expected to experience disruption and fragmentation in 2017 ahead of MIFIDII’s implementation in January 2018.
Equity research buyers will need to rethink their existing research management processes to ensure they are ready to comply with the new rules.
In this piece we outline everything that buyers need to know about MIFIDII and suggest ways that investors can capitalise on changes to the investment research landscape to drive smarter investment decisions.
- MIFIDII will require the unbundling of research payments from execution spending
- Investment research must be paid from a fund manager’s own account or via a separate client research payment account “RPA”
- Buyers must establish in writing their procurement rules, especially concerning the value research brings to their investment process
Impact of MIFIDII on the Equity Research Market
After years of intense consultation and lobbying, the European Securities and Markets Authority (Esma) has announced that its capital markets reform legislation will come into effect in January 2018.
Ahead of its implementation, MIFIDII is already causing disruption in the equity research space.
To comply with the new regulation, global investment banks, including Barclays, Citigroup, JPMorgan, Citigroup, Morgan Stanley, Nomura and UBS are devising new pricing models to remain competitive.
“In an unbundled world, where payments are separated, competition for equity and credit research may increase as asset managers look beyond traditional sources, which may trigger fragmentation,” say Bloomberg Intelligence Analysts Sarah Jane Mahmud and Alison Williams in a recent article by Bloomberg.
MIFIDII Likely to Cause Disruption in Investment Research Space
Nomura, Japan’s largest brokerage firm, closed its entire London-based equity research division in April of this year because it felt that MIFIDII will put the firm’s bottom line under sustained pressure.
In a statement made in April 2016, Tetsu Ozaki, chief operating officer at Numera, said: “This exercise will deliver significant efficiencies and cost savings for Nomura, refocusing the firm’s activities and reallocating resources towards its areas of expertise and most profitable business lines.”
Nomura is not alone in its concern that MIFIDII will bring increased scrutiny and potential losses to its equity research division.
“The first question any equity researcher we interview asks us is about MIFID and our approach,” said Laura Janssens (co-head of equity research at Berenberg) in a recent article by eFinancialCareers.
But while many global investment banks and brokerage firms are pessimistic about the outlook of the equity research market post-MIFIDII, there are several independent research providers who expect to gain market share as a result of Europe’s move to regulate research unbundling.
Independents Poised for Growth In New Regulatory Landscape
“Investment banking research is changing and there’s greater demand for more in-depth, longer-term focused information. It’s easier for us to innovate, and we’re nimbler without the same cost-bases of the big firms,” Andrew Howard (former CEO of independent firm Didas Research) recently told eFinancialCareers.
In a March report published by PwC entitled “Into the Future of Investment Banking,” the consultancy wrote that research providers who offer expertise on specialised areas will be the types of institutions to create ‘market-leading research.’
The equity research providers that are most likely to attract buyers will probably be the firms that provide in-depth, differentiated actionable insight at a reasonable rate.
Many independents operating within Europe are already getting the attention of equity research managers because they provide meaningful solutions to the problem of information overload.
“The industry has been distorted by a marketplace that is inefficient. My view is that we need to completely rethink how the business works,” says Smartkarma Co-Founder Jon Foster.
For more on how independents are poised for growth in the European investment research market, read our blog post here.
Smartkarma’s Buyer Advice
Our advice to buyers is to do a hard assessment of the research you are receiving- how much you really need and how much you’re paying for it.
Institutions reviewing their research procurement processes should take a multi-faceted approach when evaluating research purchasing post MFIDII. With an increased focus around cost transparency, buyers should look for consumption analytics, which aid in assessing usage and value add.
Buyers may also want to look into research marketplace models, which provide a direct link to research providers and can reduce costs associated with traditional research operating models.
Finally, clients paying for research via an asset manager should look for a clear and quantitative approach to measuring research value with appropriate oversight and governance in place.
The impact of MIFIDII on investment research has been widely discussed in recent months by the financial press.
Some investment firms, including M&G, have recently announced that they will no longer charge clients for conducting broker research, opting instead to pay for research out of their own resources. This move could signal a revolutionary change in the way that investment research is bought and sold within Europe.
Other major players have said that they will continue to operate in much the same way as today, choosing only to implement those changes mandated by MIFIDII.
With little time to go before MIFIDII comes into effect, investors are eager to know whether the legislation will bring evolution or revolution to the investment research landscape.
The Shortcomings of the Current European Investment Research Landscape
Since the 2008 financial crisis shook the European financial markets, EU policymakers have sought to implement financial legislation that regulates the robustness of Europe’s financial markets.
Measures to introduce greater transparency into the European financial sector have been at the heart of the MIFIDII project. Once MIFIDII comes into effect in January 2018, asset managers will be required to separate research payments from execution costs. If the firm wishes for a client to pay for research, fund managers will be expected to report on the individual research providers paid from the account, the amount they receive over a given time period, and the services they provide.
This degree of transparency is unprecedented within Europe and is expected to inject much-needed innovation into the industry.
In 2012, the UK’s Financial Conduct Authority (FCA) estimated that £1.5bn of investors’ money – over and above charges that savers had previously agreed to pay to fund managers – was spent on investment research in the UK.
The FCA further estimates that European investment managers spent £3bn of clients’ money on dealing commissions in 2012 and that those same investment managers received £1.5bn back in the form of investment research.
“It may have cost investors £1.5bn, but it is commonly acknowledged that much of it is valueless and even some of the research providers will admit, off the record, that 90% of it is never read by anybody,” said Daniel Godfrey (former chief executive of the Investment Association) in a recent article by FT.com.
The investment research landscape within Europe is currently dominated by investment banks. Most research comes in the form of buy/sell/hold notes delivered by email.
Many speculate that the firms best poised for growth in the new European regulatory landscape are not investment banks, but independent research providers.
Independents that provide focused, reliable and relevant insights at a reasonable rate are expected to be an appealing alternative for investors once MIFIDII comes into effect.
Investment banks who continue to charge a premium for research to sustain bureaucratic operational processes and overstaffed research teams will need to rethink their existing processes to remain competitive.
“With transparency comes responsibility for asset managers. Access to large volumes of bundled “research” of questionable quality will cease, and managers will need to carefully assess both the value add of the research they are paying for and the value for money of that research,” remarks Jon Foster, Co-Founder of Smartkarma.
“Valuable and differentiated research plays to the strengths of independent analysts. Value for money however is less obvious in a fragmented market place. By providing an efficient platform, Smartkarma brings true economies of scale across the industry whilst preserving the vibrancy of an independent community with different skills and opinion,” Foster adds.
For more on MIFIDII and our coverage of the rise of independent research providers in Europe, read our blog post here.