Equity Research careers – what happens next?
As specialist recruiters in the Equity research sector, we thought it would be useful to summarise the trends we have observed in 2019 and what we believe might happen going forward. Our comments are focused on the industry from a career perspective.
What are heads of research looking for?
Progressive managers are trying to source talent for the future who are most at ease producing stand out thematic and differentiated research alongside the necessary maintenance research which has always been expected. Having a really knock out idea is not going to emerge like clockwork every month, nor even every quarter. Therefore care and attention is being taken to interview those with the creative flair and entrepreneurial thinking that might enable them to have a fighting chance of producing one or two really stand out ideas per year.
Consensus earning info and maintenance research:
Whilst not dead, the pricing power in a MiFID II world of more traditional research – earnings updates and more news flow orientated snap shots – has very limited pricing power. As a result, research management at the more progressive platforms are keen to balance the need to provide their clients with this data, whilst focusing their intellectual energies on more profitable and creative research which can command greater income.
Diversity of talent:
This means more than reversing the male gender bias in research. It also means diversity of thinking and thus diversity of commercial experience. The days of defaulting to the big four accounting firms to hire newly qualified accountants to fill junior research roles are not completely over, but management teams are finding that really creative and differentiated research thinking may come by hiring directly out of industry. Also, the desire to re-approach those that may have left the industry years prior, but were really talented and are open minded to returning is becoming more common place.
As a general theme, the research industry has not really had a sustained approach to entry level hiring since the Tech boom of the early 2000’s. There is therefore more often than not a real lack of junior talent when running searches. This means it is now a good time to enter the industry if you are young and talented and back yourself – the field of competition is narrow.
Commercial agreements between Sell and Buy side:
MiFID II is still playing out from a price perspective. However, what is beyond doubt is sell side analysts have more pricing power for innovative and differentiated research over regular and diligent maintenance work.
There was a reasonable amount of activity in the first half of 2019 as platforms sought to strengthen weaker teams or replace those who had jumped ship or left the industry. The bulk of this activity was at the VP and Director level as the majority of research departments maintained a drive to reduce the number of Managing Directors on their cost base. The second half of the year was far quieter, driven by weak ECM activity and a continued trend of lower secondary trading volumes. Official and unofficial hiring freezes were common place by the end of the summer.
Post the election on the 12th December 2019, we expect to see a relative recovery in primary activity in London and Europe. This, coupled with the start of a new trading year, will see a push to complete hiring that was not possible in the second half of 2019 and the pursuit of new hiring objectives. Indications are that bonus payments for 2019 will be down again, repeating the general trend we saw in 2018. Management teams are increasingly moving away from ‘median pay bands’ and being forced to use their smaller compensation pools to reward those sectors and analysts that are of greatest commercial value. We expect to see higher level turn over at the AVP/VP level than in 2019 as banks seek to extract up and coming talent that might feel deflated after a worse than expected bonus round.
Winners and losers:
Its increasingly likely that there will be a concentration of providers of waterfront research coverage from the top five or six global banks by research rankings. Being in this top tier and thus a primary source of waterfront research coverage for the majority of fund management platforms will be a good place to work in research for the coming years. The alternative is to choose one of the best in class regional UK or European experts, either a top four UK mid cap broker or European equivalent.
As we saw with the demise of Deutsche’s global banking presence during 2019, we would expect to see more examples of research providers continue to retrench from what is an increasingly uneconomic function to support, unless you are best in class or have the momentum to get there.
Still a great choice for a career if you are brave enough!
Equity research as a career choice can still be one of privilege – the chance to be paid extremely well to analyse and debate the performance and outlook for companies with investors with the world over. In the next few years we would expect to see the beginnings of a new bread of analyst emerge – those who understand their commercial value, who can help determine their own earnings in a more transparent earnings environment.
During 2019 McLean’s equity research team placed analysts and teams in the following sectors:
Banks, Chemicals/Fertilisers, Construction, Diversified Financials, Consumer Goods, Industrials, Insurance, Investment Funds, Leisure, Media, Oil & Gas and Technology
Nick Gebbie heads up the Equities division at McLean Partnership. For more information or a confidential discussion on how we can help, please contact Nick on 020 35976407 or NicholasGebbie@mcleanadvisory.co.uk