“I spent 30 years in equity research. The job only got harder”
I have just retired from a three decade career in equity research. I'm privileged. It was an interesting and well paid job. But it was also a job that got harder and harder the longer I did it for.
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I began my equity research career in the City of London in the 1990s. At that time, hedge funds barely existed and the buy-side was not a glamorous place. The sellside was where the rewards were and top equity researchers at major banks were very well paid.
High pay was accompanied by a comparatively easy working environment. These were pre-MiFID, pre-dot com days, when fees for equity analysts were bundled in with fees for executing trades. They were also the days when equity analysts could make money recommending client stock. And, they were the days when the buy-side was not sophisticated.
In the absence of hedge funds, our buy-side clients at that time were long only asset managers. They were neither sophisticated nor well-informed. As researchers on the sellside, it was our role to act as a kind of outsourced research service for them. Buyside clients had a few trusted researchers and salespeople and if you were one of them, you made a good living. We were well-respected. We offered insights and we conducted deep research work.
Over the years, this changed. Hedge funds came to occupy a significant position on the buy-side. They were far more sophisticated clients, with their own research teams which often provided actionable rather than thematic ideas. We were competing with these in-house researchers and we started to lose our edge.
When MiFID meant research fees were “unbundled” from fees for executing trades, all buyside firms became much careful about how they spent money. As equity researchers in banks, we had to work harder and harder to make our products worthwhile.
My team therefore spent much of the past decade scrabbling to find extra data that might make our recommendations valuable or enable us to say something new and interesting. Competition has been vicious.
The role of the researcher has also changed. At its most fundamental, equity research involves building financial models and writing reports to explain the models’ insights. This can often be done by juniors and is one reason for the “juniorisation” of equity research jobs. At more senior levels, though, equity research increasingly has a marketing element. As a senior researcer, there are client and investor calls and there’s quite a bit of travelling.
If you’re not careful, this can take you away from the coal face. As you become more senior and spend more time marketing, juniors take over the model-building element of the role and write reports around the models. And yet, if you play it right as a senior researcher, you can still have a good career. At senior levels, you meet investors and company management, and this is how you often gain the most valuable ideas. Knowing what the street is saying about a stock is important and adds value to clients. In the ideal situation, you’re recycling what you learned on your last call for your next call. It’s a virtuous circle.
In this sense, equity research is still about relationships. It’s still old school stockbroking and it’s difficult to disintermediate. From my perspective, it’s also what kept the job interesting and what gave me my edge. But I could never, ever, be complacent.
Jack Andrews is a pseudonym
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