Cohen start-up aims to shake up bank research

Hedge fund magnate Steven Cohen and the venture capital firm led by former Palantir co-founder Joe Lonsdale have invested in a start-up hoping to overhaul the investment banking research model, which has come under intense pressure in recent years.

Mr Cohen’s Point72 Ventures, the VC arm of the prominent hedge fund manager’s family office, and Mr Lonsdale’s 8VC led the investment round in Street Contxt, which says it “helps brokerages, independent research providers, and asset managers distribute, manage, unbundle and value research”. The size of the investment was not disclosed, but the company has raised $15m.

Investment research is one of the most high-profile parts of the banking industry, with star analysts and economists often closely followed for their forecasts. But falling profits and more onerous regulations have forced a cull since the financial crisis.

The number of analysts working at the world’s 12 biggest investment banks fell to 5,981 last year, according to Coalition. That was down from 6,282 at the end of 2015, and 6,634 at the end of 2012, when the data provider began to collect the numbers. Many smaller brokerages and banks have made even deeper cuts, according to analysts.

The pain is expected to intensify in the coming years, especially with the advent of the Mifid II regulatory package in Europe. This will compel asset managers to strip out payment for research, either pushing the costs directly on to clients or covering it themselves, rather than the traditional way of rewarding banks and brokerages through trading commissions. That has spurred several initiatives inside and outside the finance industry, aimed at changing how research is done, distributed and paid for.

Wall Street is going through an ecosystem change, where it’s all about content. And there are cost pressures on all sides

“It’s all coming to a head,” said Blair Livingston, Street Contxt’s chief executive and a former RBC and IEX executive. “Wall Street is going through an ecosystem change, where it’s all about content. And there are cost pressures on all sides.”

Street Contxt is a platform where investment banks, independent research boutiques and brokerages can distribute their research. It aims to better tailor offerings to clients such as asset managers and hedge funds, which are swamped by thousands of emailed reports a day, many of which go unread or even unopened.

This longstanding problem for the research industry is being exacerbated by many investment groups trimming how much external research they use. Bigger asset managers, in particular, are building up their own internal analysis groups.

BlackRock’s biggest mutual fund, the $40bn Global Allocation Fund, has halved how much it pays for research through trading commissions over the past two years, from $28.8m in 2014 to $13.4m last year, according to Reuters.

“The asset management industry is currently undergoing immense change, and Street Contxt’s data-driven networks increase transparency and help both brokers and asset managers focus on the analysis that is both most valuable and relevant to traders and the functioning of the markets,” Mr Lonsdale said in the statement announcing the investment.