Investment research budgets have seen a notable increase in the first half of 2024, both in absolute terms and as a proportion of assets under management, signalling a shift away from the years of price depreciation and budget cuts that have characterised the market.
According to the latest survey by Substantive Research, a research and data spend analytics provider, US research budgets rose by 15% as a proportion of AuM, while European budgets saw a more modest increase of 4%.
According to the researchers, this upward trend contrasted with previous years when global research budgets were shrinking. The survey highlighted how the investment landscape is evolving, particularly in the wake of the FCA’s April 2024 Consultation Paper on “Payment Optionality for Investment Research.” This paper has sparked a debate on whether European asset managers might pass research costs back to end investors, reversing the practice established by Markets in Financial Instruments Directive II (MiFID II), where managers bore these costs themselves.
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The decision to implement this optionality could heavily depend on the response from investors.
The survey also noted that in monetary terms, global research budgets grew by 2.2% in the first half of 2024. While this increase might seem modest, it represents a significant shift in the market dynamics. “We are back to a market of winners and losers, instead of almost all research providers experiencing price deflation year after year,” commented Mike Carrodus, CEO of Substantive Research.
Brokers continue to dominate the research spending landscape, capturing 85% of the budgets, though their share has slightly decreased by 1% since 2023. Meanwhile, spending on tooling and analytics solutions has grown, signalling a shift in focus toward more advanced research capabilities. The researchers predicted that this trend will continue, with increased spending on these tools expected in the next budgeting cycle for 2025.
Independent research providers and expert networks maintained their positions, accounting for 8% and 2% of annual budgets, respectively. The slight increase in concentration of research budgets among the top 10 brokers, from 54.8% to 54.9%, will be an important metric to watch, particularly in light of the FCA’s proposed reforms aimed at fostering greater competition.
