New York, NY - Over the past few weeks the team at Integrity Research Associates has written a number of blogs about various types of Primary Research -- namely, Expert Networks, Market Research, and Channel Checking. As we have mentioned in these posts, the growth in Primary Investment Research has been extremely robust as mutual fund and hedge fund analysts have searched for better inputs for their analytical processes.
However, we anticipate that going forward, not all primary investment research will be equally valuable to the buy-side. Consequently, certain segments of the primary research industry should fare better than others in the coming years. The following blog discusses Integrity's global estimates for the Primary Investment Research business.
Definitions
Before we discuss our specific forecasts, it is important that we identify exactly what we are talking about when we mention the investment research category "Primary Investment Research".
Here we are talking about various types of custom research and software systems that directly collect data or information that doesn't currently exist. This data typically provides investors with quantitative or qualitative evidence about business or product demand, developments that might influence product supply, or other issues that could give an investor an understanding about the near-term performance of a product or company. The team at Integrity have identified a number of types of research that belong to the "Primary Research" category. This includes:
- Access to Management
- Channel Checking
- Data Mining
- Expert Networks
- Market Research
- Search Based Research
It is important to note that in estimating the size and growth rates of the Primary Investment Research business, we have only included the revenue spent by institutional investors on this type of research. Of course, other types of financial services companies purchase this type of research, including sell-side equity research departments, investment banking departments, venture capital, and private equity investors.
Another huge market segment that we excluded from our estimates was corporate clients. This segment of the market spends tens of millions of dollars annually on primary research -- particularly custom market research and access to expert networks.
Industry / Segment Growth
On a global basis, we project that the Primary Investment Research business will grow at a robust compounded annual growth rate of 14% from approximately $494 million in sales in 2007 to $950 million in 2012. It must also be understood that during the five year forecast period, we anticipate that the financial services industry will experience at least one major market downturn that will temporarily reduce client demand for investment research.
While this double digit forecast is extremely healthy, we do not expect all segments of the Primary Investment Research business will perform equally well. In fact, the largest portion of this market, the Expert Network business, is projected to grow at a slightly slower 12% CAGR over this period from $310 million to $551 million.
This forecast represents a significant slowdown in growth from the past five years where the expert network business more than tripled. This projected slowdown is due primarily to increased competition, pressure on prices, a high client penetration rate, and a small but growing amount of internalization of this capability.
We estimate that the custom survey (market research) and channel ckeck business will grow at a 16% CAGR from $138 million to $282 million from 2007 to 2012. This represents continued strong growth in this segment as institutional investors search for more proprietary inputs to their research and investment process.
The remainder of the Primary Investment Research business (Access to Management, Data Mining, and Search Based research) is expected to grow at an even more rapid 21% CAGR from 2007 to 2012. Part of this growth is due to the fact that this segment is so small to begin with. However, we expect that these unique types of primary research will grow as more PMs and buy-side analysts learn about the innovative ways to gain proprietary primary insight into the performance of specific products and/or companies.
Market Share
As a result of these projections, we expect that the market shares of the various Primary Investment Research businesses will shift slightly over the coming five years.
The share of the expert network business is estimated to fall from 62% to 58% by 2012. The custom survey (market research) segment is expected to increase its share from 9% to 10% by 2012, while the channel check business is projected to see an increase in its share from approximately 19% to 20% over the same period. The "Other Primary Research" segment is expected to see an increase in its share of the industry from approximately 9% to 12% over this five year period.
Posted at 08:18 am by mwmayhew
Permalink
