Probing Investment Research: Uncovering Process Challenges

Research remains an integral part of the investment process for all investment management companies. Meticulous research does not end post identification of alpha generating securities, but continues by way of regular monitoring of landscape changes that may impact how these securities perform in the market.

The process for generating investment ideas may differ based on the investment research policy, whereby internal research can be augmented by third-party research; however, majority of investment managers rely on third party sell-side research as a starting point, which is widely available to any party that is able and willing to pay for it. The generic and often biased nature of this sell-side research warrants intensive evaluation by the investment managers before making informed investment decisions.

In addition to the quality of research, the magnitude of information that an average analyst has to go through can be daunting. Investment managers often subscribe to more than one investment research provider, which if not managed efficiently may be rendered useless by sheer volume.

On a broader level, issues faced by research departments can be categorized into functional and operational issues. Functional issues relate to the investment research process, starting from identifying the investment to active monitoring after the investment has been made, or not made. Functional issues can be uncovered by studying the Investment Research Policy and Process adopted by the research department. The review includes, but is not limited to, induction and training of new investment analysts, generation of investment ideas, development and maintenance of financial models, communication with investee companies and prospects.

Operational issues are the challenges faced in handling of internal and external investment research in the absence of investment research repository or databases. The volume of research coming in from the sell-side can be formidable, which coupled with research generated internally, can be hard to handle. In these circumstances, by maintaining all research material in a central place, an efficient Investment Research Database can go a long way in streamlining how a research department manages its information sources and research output.

Stradegi believes that identifying challenges faced by research departments is key to increasing the overall effectiveness of the investment process. A detailed review and a subsequent optimization of processes helps analysts focus on identifying possible investment opportunities, rather than noncore processes. To help investment managers better understand these challenges, Stradegi plans on conducting a study, to identify key priorities and challenges faced by investment research practitioners. The eventual objective of the study will be to identify the business issues faced by investment research departments and at the same time to discuss recent industry trends that may drive the future direction of investment research.

For any comments or queries on the proposed study, please contact Ammar Ali at