MiFID Means $20 Billion Fund Manager Gets Analysts on the CheapBy
Far from being an existential threat, the big shakeup in the money management industry has emerged as an opportunity for the investment arm of Swiss bank EFG International AG to snap up analysts on the cheap.
The company has taken advantage of cutbacks at brokers to almost double its equity-research team to about 18 before new European regulations known as MiFID II take hold in January. The rise of exchange-traded funds, which track indexes rather than involve people selecting stocks, also has increased the supply of analysts in the job market.
“The knock-on effect of ETFs, passive investments, as well as MiFID II means that there are many research analysts out there available at cheaper prices than they were before,” Moz Afzal, the London-based chief investment officer at EFG Asset Management, said in an interview. Expanding the research team so significantly was “probably something we couldn’t do 10 years ago,” he said.
The overall cost of hiring analysts has dropped about 10 percent over the past three years, but may fall more once the revised Markets in Financial Instruments Directive kicks in, Afzal said.
The regulations aim to foster transparency and drive down costs. They require investment firms to pay separately for research from banks and brokerages. A report in June by McKinsey & Co. said it may lead to hundreds of analysts losing their jobs as lenders cut about $1.2 billion of spending on research.
While prospects for the majority of smaller investment companies might be gloomy, the ones that survive will benefit as research and data costs drop, said Afzal, whose company snapped up the new equity analysts over the past 18 months. The company oversees about $20 billion.
“In the end, having a bigger research team should ultimately lead to a better performance -- you hope,” Afzal said. “MiFID II will cause the industry to re-evaluate research and how it is used. The effect of that will mean that the data and research provision will be cheaper, and we’ve already started to see evidence of that.”