The City of London's analyst landscape has undergone a significant transformation, and it's a story that deserves a closer look. In my opinion, the changes we're witnessing are a microcosm of the broader shifts in the financial industry and the challenges it faces.
The Vanishing Analysts
The annual Extel awards, once a grand affair, now feel like a distant memory. These awards, once dubbed 'The City's Oscars', celebrated the best analysts in their respective fields. But something has changed. The number of analysts covering small and mid-cap stocks has dwindled, and the impact of the Markets in Financial Instruments Directive (MIFID II) is a key factor.
MIFID II aimed to enhance investor protection and market transparency, but it had unintended consequences. It forced brokers to charge separately for analyst research, a cost previously bundled with commissions. This hit the small and mid-cap segment hard, reducing the number of analysts and causing the disappearance of some well-known names.
A Changing Landscape
The decline in analyst numbers is just one part of the story. Sector coverage has also taken a hit, with several sectors disappearing from the UK SMID survey. This consolidation and attrition have left a mark on the City's analyst community.
However, there are signs of potential recovery. The Financial Conduct Authority has softened the rules, allowing some bundling of payments for research and trade execution. David Enticknap, CEO of Extel, believes the seeds of recovery are there, but emphasizes the need for research to be valued and for the buy side to recognize its worth.
The Challenge of Attracting Talent
One of the most intriguing aspects of this story is the challenge of attracting young talent back to the City. With the allure of tech startups and the promise of quick fortunes, enticing graduates to choose a career as a broker's analyst is no easy feat. Yet, as Alistair Darling observed back in 1996, a good ranking in the Extel survey could significantly boost an analyst's salary.
A Broader Perspective
The vanishing analysts of London reflect a wider trend of talent migration within the financial industry. As the world becomes more interconnected, talent pools are shifting, and cities like London must adapt to remain competitive. The challenge is not just about attracting young talent but also about creating an environment where they can thrive and where their skills are valued.
In conclusion, the story of London's analysts is a fascinating insight into the evolving nature of the financial industry. It raises questions about the future of research, the value of analyst insights, and the role of talent in driving market growth. As we look ahead, it's clear that the City of London must navigate these challenges to ensure its continued relevance and success.
