Research budgets increasing globally for the first time since Mifid II

The first half of 2024 has seen research budgets increase both as a proportion of AUM and in absolute terms, finds Substantive Research.

In the first half of 2024, research budgets have increased both as a proportion of assets under management as well as in absolute terms, Substantive Research has found.

As a proportion of assets managed, US budgets rose 15%, with European budgets up a more modestly by 4%.

Substantive Research noted that US research budgets are able to bounce back much more quickly, given their investment professionals have more money to spend on external research from brokers and independent providers. 

Elsewhere, the research body asserted that these figures show why politicians have been pressuring the UK and EU regulators to help European asset managers return these costs back to their end investor clients.

“US budgets as a proportion of assets under management have moved significantly – we knew that this market was stabilising, but what this data points to is a faster recovery in research resourcing for American investment professionals versus their European peers,” Mike Carrodus, chief executive of Susbstantive Research, told The TRADE.

“The US, of course, wasn’t covered by Mifid II, but the research industry globally has gone through a period of stark deflation – anything from 30 to 50% decrease in pricing and payments in the research market.”

In monetary terms, research budgets increased holistically by 2.2%. Carrodus highlighted that “though a modest rise, this fundamentally changes the dynamics of the research market”.

He added: “Within that figure, some providers are increasing pricing and driving greater consumption of meetings and calls with their sector analysts. We are back to a market of winners and losers, instead of almost all research providers experiencing price deflation year after year.”

The research found that brokers still dominate research budgets, with 85% of spend annually – despite this being a decrease of 1% year-on-year.

Tooling and analytics solutions grew from 4% to 5% year-on-year, which Substantive Research predicts will accelerate in the next budgeting cycle for 2025, given that interest is high and these vendors are climbing up the provider list. Independent Research Providers (IRPs) and Expert Networks remained the same year-on-year at 8% and 2%, respectively, of annual budgets on average. 

Elsewhere, concentration of research budgets to the top 10 brokers rose marginally from 54.8% to 54.9%, which Substantive Research noted was a key metric to monitor whether the FCA’s reforms have spurred greater competition as intended. 

“I think the FCA would say if you look at what’s happened since Mifid II, there has been the realisation that there was an oversupply of research in Europe and that much of the ensuing reduction in supply didn’t really hurt the investment process for many European asset manager,” Carrodus told The TRADE. 

“The question here is flexibility and the ability to access a variety of different types of research input. There’s going to be even more flexibility now in the US, but it’s still significant that things have stabilised in the UK and Europe just before new optionality rules come into effect in both markets. It’s going to be interesting to see whether this latest trend is just a lag for Europe, or whether this difference in resourcing across regions is going to be even more stark in future.”