The Independent Research Industry in Europe is a fast growing part of the investing world. The oldest firm in the association is no more than 25 years old but much of the industry has been created in the last decade.
Member firms specializing in providing investment research to the fund management industry are independent because they are free of the potential conflicts of interest present in the main engine of investment research namely the investment banking industry.
The fallout from the tech bubble, the resulting Spitzer investigation in the US, and the Myners Report on the responsibilities of institutional investors in the UK, focused attention on the need for unbiased investment research and the role which independent providers can play.
Historically, research was perceived as ‘free’, i.e. bundled with execution services by the investment banks. Not only did this give rise to the recognised conflicts of interest, but it made it extremely difficult for independent research providers to compete, since they had to recover the costs of their activities while the research divisions of banks could, and did, cross-subsidise their research from other activities.
In the US, the global settlement negotiated by Elliott Spitzer included provisions to subsidise for a limited period the development of independent research.
The UK has given more emphasis to seeking a market solution by establishing a level playing field.
A decade on from the tech bubble a large number of IR firms have been set up in the USA and Europe covering most large industry sectors and many geographies. The industry is also populated by firms covering macroeconomics and political risk analysis. More recently a nascent industry has been emerging in Asia.