Cut in EU fund managers’ external research budget

LONDON: European fund managers have cut their 2018 investment research budgets by 20% as they scale back the number of providers they use in response to MiFID II.

That’s according to a survey of fund managers conducted by US consulting firm Greenwich Associates, which assessed the shakeup to the multi billion-dollar market for research under the European Union law that started Jan 3. The law requires asset managers to separate payments for investment research from those for brokerage services to execute trades.

The decline in spending from last year prompted by the revised Markets in Financial Instruments Directive, or MiFID II, is largely driven by more selective fund managers buying research from a smaller number of banks, according to the survey. For those who “make the cut,” there’s encouraging news: the amount budgeted for each provider will remain relatively flat.

“Over the last two years, European investment managers have clearly expressed their intention to reduce equity research spend,” Greenwich Associate Director William Llamas said in a report and based on data gathered late last year. “The official data is telling a more aggressive budget-cutting story.”

Greenwich, which last year predicted a US$300mil reduction to external research budgets, found the biggest budget changes at fund managers based in continental Europe – a 32% decline – compared with a 17% drop in the UK. The finding was based on responses from 29 firms. “Throughout the MiFID II buildup, U.K investors have been ahead of the continent in terms of preparedness,” Llamas wrote. — Bloomberg