By Alasdair Pal
LONDON (Reuters) – Research platform Smartkarma has launched a funding programme for investment bank analysts looking to quit their jobs, as new European Union rules on market transparency make their roles less secure.
Under the Markets in Financial Instruments Directive II (MiFID II), which went live in January, fund managers will have to pay an explicit fee for receiving research from banks, whereas previously they could get it for free and pay for it in trading costs.
The directive is expected to lead to a reduction in the amount of research being produced by banks, particularly on smaller European companies, and could lead to job cuts among the thousands of bank analysts known as the “sell-side”.
Smartkarma’s scheme, called Boost Research, will initially provide start-up funding, office space and administrative support for up to ten start-ups based in its London office, expanding the number over the next year.
“MiFID has put pressure in the sell-side and is likely to see a reduction in the coverage of companies, especially mid- and small- caps,” Boost’s head of research Mark Artherton told Reuters.
“Lots of analysts must be fearful of their jobs in this type of environment (and) we are trying to ease that transition if they do decide to become independent.”
Independent research from firms that do not offer traditional investment banking research like trading and corporate finance has blossomed in recent years, as fund managers adjust to the new rules.
A 2016 survey of fund managers by consultancy Quinlan & Associates concluded that analyst headcount at banks will fall by 30 percent by 2020.
Founded in 2014, Smartkarma currently has around 400 independent analysts on its platform, whose research is distributed to more than 140 asset managers, hedge funds and sovereign wealth funds.
(Reporting by Alasdair Pal; Editing by Hugh Lawson)