New York - In further analyzing the data from Integrity's "Buy-Side Research Procurement & Valuation Benchmarking Study", the interests of the buy-side in specific research types can vary widely.
The table below shows the interest level of specific methodologies for the buy-side, which is also divided into hedge fund and non-hedge fund subsectors for further analysis. Firms were asked which research methodologies they would like to learn more about. As a result, each firm could choose a number of research methodologies.
Overall, the Buy-side places a good deal of emphasis on the non-traditional forms of research, namely forensic, channel checks, quantitative research systems, outsourced research services, investment strategy, small cap research and expert networks. Depending upon the type of buy-side firm, however, there were certain categories that faced differing demand curves from hedge funds vis-a-vis non-hedge fund buy-side firms.
Interest in Research Methodology by the Buy-Side
| Methodology | Total | Hedge Fund
| Non-Hedge Funds
|
| Forensic | 44% | 35% | 52% |
Channel Check
| 35 | 35 | 35 |
Quant Systems
| 33 | 30 | 35 |
| Outsource | 28 | 25 | 30 |
Investment Strategy
| 28 | 25 | 30 |
Small Cap
| 23 | 35 | 13 |
Expert Networks
| 16 | 30 | 4 |
There are three quite distinct differences in the interest in research methodologies among the hedge funds (HF) and other buy-side firms (NHF). The first pronounced difference is the acceptance of the forensic analysis. Here, of the NHF firms, 52% (1 in 2) of the votes for more information were for forensic analysis, which includes earnings quality analysis as compared to a 35% (1 of 3) votes for the HF community. One explanation for this discrepancy could be a greater prevalence of 130/30 and 120/20 investments undertaken by the NHF buy-side. In light of these strategies, a greater interest in short ideas and torpedo alerts would be required.
The second distinction is in the interest level expressed for small cap research. As expected, the HF firms are more interested in small cap research, since they are looking for high growth potential by firms that are not well known by investors. Here the HF firms had a 35% interest, while the NHF firms had only a 13% interest in small cap research.
Finally, expert networks are far more prized by the HF community, compared the NHF community. The HF firms had a 30% interest in expert networks, while the NHF firms had only a 4% interest. This may be a function of the drive for HF firms to seek original insights which are not widely distributed in the market. As to why NHF firms are so disinterested in the expert network space, we suspect that this is predominantly a function of inertia and a traditional reliance on sell-side research.
Posted at 04:13 pm by Thomas Hutchinson
