Equity researchers are suddenly in vogue. It’s the post-bonus January movement currently, with a series of senior analysts scooped up by large investment banks in recent weeks, following extended period when researchers were targeted for cuts.
Why is this? It could be that it’s a simple case of replacement hiring. With top analysts jumping to the buy-side or starting their own research boutiques to capitalise on new Financial Conduct Authority regulations that could spur demand for more in-depth research, the talent pool is substantially smaller, so musical chairs inevitably ensues. Or, it could be investment banks scaling up in anticipation of the FCA rules which have the potential to place more strain on their research departments. Less likely, suggest headhunters, is a largescale revival research recruitment.
“People are leaving for the usual reasons – because they’re undervalued and underpaid,” says Jonathan Evans, chairman of equity-focused headhunters Sammons Associates. “A lot of the larger firms still have their heads in the sand when it comes to the impact of the FCA rules, but top-rated analysts are definitely being hired again.”
RBC Capital Markets has been expanding its research function since hiring Graeme Pearson, the former head of equity research in Europe at Nomura, in the same role in August 2013. This was part of a shake-up at Nomura that saw nearly 20 analysts depart. RBC has been poaching from a number of banks, which have in turn looked for replacement hires.
However, in recent weeks, there’s been a sudden surge in new research recruits. Kai Korschelt, head of European technology research at Deutsche Bank, just took the same position at Bank of America Merrill Lynch, and Morgan Stanley hired Harald Henrikse, formerly head of autos research at Nomura, as a managing director in its autos research team. Nomura, meanwhile, has hired Christophe Dubal-Kieffer, global head of inflation research at BNP Paribas and James Hollins as an airlines and public transport analyst from Investec.
Citigroup has also been recruiting, with Marcus Diebal joining from JPMorgan and Justin Morris, a healthcare analyst at Bank of America Merrill Lynch, both signing up in October. Mathieu Robillard, a telecoms analyst at Exane BNP Paribas, has just joined Barclays.
“The level of movement in the research sector currently is more like that you would expect in the first quarter, not October,” says Andy Howard, who was head of Goldman Sachs’ GS SUSTAIN research team until July last year, but now runs his independent firm, Didas Research. “Research as a function in the large investment banks is less creative and less lucrative than in the past, but it’s still not a terrible place to work. The problem is, however, that a lot of analysts have moved on to new careers, so the talent pool is a lot smaller.”
Howard says that he received a gong in the Extel rankings ten years ago when he was a mining analyst, and still gets calls from headhunters now offering mining jobs despite the fact he no longer works in the sector. “Headhunters use rankings as a list to call when a vacancy comes up, it’s the best external verification of your abilities, but it inevitably means a limited number of potential candidates.”
Looming in the background for investment banks are the new FCA regulations that stipulate the buy-side can only spend their clients’ dealing commissions on ‘substantive research’, which means they need to detail exactly what they’re spending on equity research to the regulator. Edison Investment Research suggested in February that banks’ already squeezed research teams could lose a further 10-15% in revenue, while independent research boutiques are lying in waiting hoping to capture a new appetite for meaty insights with no conflicts of interest.
The new hires suggest investment banks aren’t overly worried about this just yet, but Evans thinks it could lead to yet another culture shift. “There’s the potential for the return of the rock star analyst, who is judged not on their corporate commissions draw, but their ability to secure research mandates. Well-recognised names will be well looked after.”