24 January 2017

European directives will impact research procurement throughout the UK, but what does this mean in practice?

University of Edinburgh Business School researchers have been analysing how professional investors procure information from external sources, such as sell-side and independent research firms.

This has become known as the market for investment research. This topic has rapidly ascended the ‘to-do’ list for chief investment officers and their research providers. And now we have a Best Practice in Research Procurement Masterclass, aimed specifically at executives in charge of research procurement.

Under the new Markets in Financial Instruments Directive II (MiFIDII), effective as of January 3rd 2018, fund managers will need to set pre-agreed budgets for research payments, provide detailed audit trails of payments made to research providers, and disclose transparent methodologies as to how they select and pay for research.

Even though this is a European Union directive, it’s one that will be required by the UK regulator, regardless of a hard or soft Brexit. Its effects will be felt globally.

A recent study by our researchers shows that changes in payment mechanisms have allowed fund managers to obtain greater independence in the advice they purchase, a wider choice of inputs and better value for money. It suggests that fund managers place more emphasis on information processing rather than equity valuation, on business research rather than on securities research, and on advice rather than predictive accuracy. To read these findings in detail, check The Changing Market for Investment Research paper.

Alistair Haig, co-author of the paper and masterclass, has engaged not only with analysts, fund managers and regulators but also with entrepreneurs, including Mike Carrodus, founder of Substantive Research, a company that matches fund managers with the research they require. Haig has been working with Carrodus to refine the way in which Substantive Research evaluates the large volume of financial research published daily, and how it’s made accessible to fund managers.

Drawing on real-world best practice and operational case studies, our one-day Best Practice in Research Procurement Masterclass will offer change management skills and knowledge to those in charge of responding to research regulations.

The masterclass will focus on understanding the options available, navigating regulatory risk and maximising profitability, and covers a broad section of approaches, and not only those which use dealing commissions.

The Masterclass will run in London at the Crowne Plaza Hotel on 25 April 2017.


Alistair Haig is an Early Career Fellow in Finance at University of Edinburgh Business School.

 

 

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