Wanted to grasp on what everyone thought about this - as I can see both sides of the spectrum of this argument.
Read an article from BI stating that with CRM (i.e. SalesForce, etc.) technology advancing in the ER workforce and ultimately cutting out some ER spots in firms. Firms are going to be paying even less to get reports from analyst since they have almost enough information that they need for their analysis unless they'd prefer the written version rather than having it automated.
Hedge funds are going more towards the ETF/index-tracking route, but I feel boutiques should be okay despite this anticipated change.
Thoughts?
See Business Insider article: http://www.businessinsider.com/equity-research-an…
I wanted to echo what pacificoast wrote.
Also keep in mind that the decline of equity research is more of a result of declining equity commissions/failure of actively managed industry to consistently beat benchmark then it is AI/automation shrinking jobs. As the article also mentioned, do we really need 30-40 analyst covering Apple when the majority share undifferentiated views?
This. ER is paid for by commissions...with declining commissions there is less money for ER. Pretty simple really It's not about automation of research. Numbers only tell part of the story. Calls with management, experts, etc. are really what connect the dots that are the numbers.
The hypothetical scenario where true research went away would be a great case study of the law of unintended consequences. Good research is needed and it would be a really shitty market if it went away.
This is complete and total rubbish. Its obvious that you have absolutely no idea what quants do.
It is also obvious that you are not good at interacting with other human beings.
bye
ER at the big banks/brokers is less about the analysis, more about information broking / connecting management and investors. That part of it is harder for machines to disrupt. That said, the argument that less actively managed capital = lower comms = lower ER headcount sounds reasonable.
You'll always need someone to blame
"There are going to be fewer Wall Street stock analysts in the future, according to some Wall Street stock analysts."
Business Insider has the BEST words.
Seriously, it's like BuzzFeed, but for finance.
Definitely laughed when I saw that in the article, quality "journalism" by them
The downfall/decline in ER revenues is due to the failure of active management to generate returns appropriate for their fees. The next frontier in Asset Management is low fees and passive management (mostly because of the low fees associated with it), and both of those lead to lower ER revenues.
I'd guess that in 10 years there are 50%-75% as many sell side research analysts/associates. And those that are still working will be making 50%-75% of what an equivalent person makes now. The business model is fundamentally flawed as it is and will be even more so as active mgmt fees trend lower. But research can't and won't just go away.
I think if any part of cap markets is getting cut, its traders.
In regard to ER, access to management and unique information (store checks, etc) is what people will pay for and I don't see that going away anytime soon.
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