UK corporate access initiative could limit competition
Pressure on UK buy-side firms to stop paying for corporate access through execution commissions could impede competition for UK asset managers and corporates, a conference has heard.
Speaking at a London event today run by UK buy-side trade body the Investment Management Association (IMA), Steve Kelly, who heads up Thomson Reuters' Extel surveys, said asset managers and corporates needed to establish a way of paying for corporate access as it was vital to the investment process.
An initiative lead by UK regulator the Financial Services Authority in November, and taken up by its successor, the Financial Conduct Authority (FCA) sought to stop buy-side firms paying for corporate access through dealing commissions.
He said corporate access was a growing area and if it remained concentrated in the UK - with the US and Europe currently not seeking to alter the established practice - it could create competition issues for UK asset managers.
"If [the corporate access initiative] remains a UK-only aspect, I think that causes big questions and potential consequences in the way this develops and UK buy-side and corporates could be disadvantaged," Kelly said.
Kelly presented results of the 2013 Extel survey, which showed corporate access represented 25% of research and advisory payments for cash equities from buy-side firms.
The data showed that for more than 4,000 asset managers surveyed, payments for broker research and advisory services were led by corporate access fees, totalling 17.6%, which, combined with payments for expert panels and access to specific networks, totalled 25.2%.
Second to corporate access, payment for 'independent thinking' registered 16.3% and payments for trade ideas, 15.7%.
As such, Kelly said buy-side firms had responded actively to the regulatory initiative to separate corporate access payments from research payments, which can be covered through execution commissions.
"Asset managers have very specifically removed corporate access from their internal voting processes and explicitly advised portfolio managers and analysts not to include any references to corporate access in [broker] votes," Kelly said.
"There is no denying in any respect that the buy-side is taking this issue very seriously."
Despite this wide acknowledgement, buy-side firms will be affected differently depending on their size, Kelly said. The Extel results showed the chasm between large and small asset managers, with smaller firms dedicating 16.6% of research and advisory payments to corporate access, compared to just 11.3% for larger firms, which are often courted by large corporates ahead of equity issuances.