So it was just announced that CLSA cut all US ER staff, including Mike Mayo. What do people in the ER industry think of this? The email highlights:
"Driven by declining revenues in equity research and increasing investor demand for low-touch, best execution strategies the changes announced today will impact US domestic research, sales, trading, corporate access and associated support staff."
I've been aware for a while that ER is a tough business line, I work at a long-only buy-side AM and soft-dollars are pretty hard to quantify for our sell-side brokers. As far as I know, soft-dollar arrangements have been made to cover our Factset and Bloomberg terminals, which is pretty ridiculous when you consider the per-share commission for a trading firm.
We do pay for some research (ISI and Bernstein), but I think the majority of it is provided for free. What does everyone think?
I'm curious, what differentiates ISI and Bernstein for you guys versus research from other shops?
In general, Evercore ISI has a killer team of analysts, a lot of II #1's. Same for Bernstein - both have a focus on quality and don't just put out stuff to get in your inbox (to a degree).
Our guys get on the phone with them a lot more, we don't really do corporate access too much but they do get grilled a bit. Just a higher cut and something our CIO decided was worth paying for - I don't think they are as friendly with soft-dollars or kickbacks.
I was pretty surprised by the announcement since they've been investing in the US business heavily and had some well known analysts such as Mike Mayo. If CLSA can't make it work it says a lot about the smaller brokers which presumably are under even more pressure.
If the U.S. ever switches to a MiFID II type system where asset managers have to explicitly break out research vs. execution commissions it will really shake up the US equity research business. Europe is already moving to this which is why you're seeing a lot of cuts there. I think this is a natural progression and frankly it would not surprise me to see soft dollars disappear in the next decade. A lot of older people in the industry are in total denial about it though.
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