As Asia’s institutional equity investors contend with plunging portfolio values and pressures to reduce their own internal costs, they are relying increasingly on sell-side firms for essential research and advisory services. At the same time, the results of the most recent Greenwich Associates Asian Equity Investors Study reveal that the typical Asian institution is cutting back on the number of equity brokers with which it trades.
Sharp declines in stock prices and the ongoing de-leveraging of buy-side portfolios have shrunk the pool of institutions’ equity brokerage commission payments. Within that diminished pool, however, the share of total commission payments used by Asian institutions to compensate equity brokers for research, sales coverage and for the facilitation of meetings with company management teams jumped to 66% in 2008 from just 55% in 2007. Most of the commissions shifted to research and advisory services came from allocations for trading coverage and agency execution, which declined to 26% of total commissions from one-third a year ago.
“The reversal of this trend does not mean there is less desire for superior execution, but rather that, in times of unprecedented market turmoil, the need for timely insights and access is even greater and the opportunity cost of not securing them is not something that investors want to risk,” says Greenwich Associates consultant, John Feng.
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