In one of his many imaginary conversations, Willy Loman returns home from a tiring road trip to share a secret dream with his boys, Biff and Happy. "Don’t breathe it to a soul," says the 63-year-old protagonist of Arthur Miller's Death of a Salesman. "Someday I’ll have my own business, and I’ll never have to leave home any more."
These days, many equity analysts are thinking similar private thoughts, wondering if they have enough cachet with investors to become their own bosses and sell their work without leaving home. As with Willy, the confidence in one's ability to strike out as a lone wolf can be just deep-seated pessimism: They know that the brokers they work for won't be able to afford them for long.
For a peek into the dystopian future, peruse a survey by Greenwich Associates. Three years ago, 65 percent of big institutional investors' commissions to their brokers for Asian equities was for research and advisory services. The figure for last year was 56 percent. What made 2016 doubly awful was that total commissions were down 16 percent from the previous year.
The big shift is the rise of passive investing. Who wants to pay a U.S. mutual fund 1.02 percent of assets, when the Vanguard FTSE Emerging Markets ETF charges 15 basis points? Making things worse, regulators want the buy side to be explicit in what it forks out for sell-side research.
Europe's MiFID II rules, which aim to usher in a new regime of transparency, are still a year from implementation. Already, though, they're casting a shadow in Asia, where (unlike in the U.S. or Japan), big investors are more likely to be global than domestic. As Greenwich Associates Managing Director Jay Bennett says of the dominant institutional investors in Asia:
These are the largest investment organizations that face a more urgent need to be compliant with MiFID II and are moving to adopt practices consistent at a global level.
With pension funds and insurance companies struggling to eke out returns, it's only fair that asset managers prune their fees. Following a global trend, hedge funds in Asia are moving away from a 2-and-20 fee model -- 2 percent of assets under management and 20 percent of profits -- to arrangements that reward managers for profits while sharing low (or no) fees based on assets. In turn, a squeezed buy side is demanding that sell-side brokers stop bundling research and corporate access with trading commissions.
Credit Suisse Group AG, Bank of America Merrill Lynch and Morgan Stanley tied for the top place in Greenwich's 2016 research and advisory rankings. But working for a bulge-bracket firm doesn't hold the same appeal in Asia as it did even a few years ago.
While junior analysts still crave a marquee name on their CVs, older professionals wonder if they should bother looking for a job after the next retrenchment, or just stay home and do meaningful work. Or that's what they daydream, while pretending to listen to investor-relations folks. Willy Loman would have sympathized.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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