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Fund manager research: Where to from here?

[UPDATED] New Zealand's investment research landscape lacks options for advisers, and the situation could be about to get worse. (Includes status of Research IP contract0

Friday, August 24th 2018, 6:00AM 2 Comments

by Susan Edmunds

The NZX is working through the process of selling its investment research arm, FundSource.

It has produced analysis for adviser and fund managers since 1987, monitoring about 700 investment funds worth more than $100 billion.

In 2015, it went through a restructure that saw it drop its qualitative research functions and partnering with Financial Express to provide a new quantitative tool.

Then, in 2016, it started a new round of qualitative research reports delivered by ResearchIP managing director Darren Howlin.

The NZX has been focusing on areas and opportunities that support the growth of its core markets business as part of its refreshed strategy.

It has created a data and insights team, which incorporates FundSource.

An NZX spokeswoman said it had no intention of changing the way that business operated but it remained for sale. She said there was no further information with which to update the market at this stage.

Chris Douglas has also left his role at Morningstar, the only remaining FundSource competitor, and it is expected that New Zealand research will be run from Australia in future.

David Boyle, now working for Mint Asset Management, said it was a concern for the local industry, which used to have a range of options including Lonsec and Van Eyk.

"I'd hate to see New Zealand not have some commitment from research companies or other organisations to continue to research New Zealand-based fund managers. I think that would create not a very good outcome for the end user."

Competition was helpful, he said, to keep pressure on prices and the cost of funding the research.

It could not be based on fund managers paying to be researched because of the conflicts that created. "The main reason it's broken is the funding model is very challenged. Fund managers can't pay researchers to research them. It needs to be totally independent from the product providers."

As advice evolved, with more expectations on advisers, research would be increasingly important, he said.

"Outside KiwiSaver, the retailed managed fund market is really challenged, it's not going as one would hope. Maybe that is in part because there is not enough quality information around managers."

Howlin could not comment on the future of FundSource, though he had received, but not signed, a new contract to provide ongoing research.

He said competition had notably dissipated. "That ultimately won't serve the market well."

If FundSource were sold, he said it should be hoped there would be a replacement coming into the market, too.

It was an evolution of a process that began in 2013, when the Kiwi research market began to change as players exited, he said.

But Australian fund managers were increasingly looking to New Zealand for funds, and were used to having researchers playing a gatekeeper role.

Tags: FundSource research

« Code Working Group gets adviser input Pie Funds joins KiwiSaver market with low fee model »

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Comments from our readers

On 24 August 2018 at 9:02 am FastJimmy said:
Lets be honest. Fund research in NZ has always been conflicted. Morningstar wouldn't research a manager unless that manager just happened to sign up for the completely unrelated package of Morningstar data/Morningstar Direct. At least Fundsource was straight forward and fully disclosed the linkage.

On 27 August 2018 at 4:12 pm greg bunkall said:
Hi FastJimmy, I work at Morningstar, and have complete view of our NZ based revenues, and a deep knowledge of our Australian business.

I can categorically say that what you said above is factually incorrect. We have many many fund companies that our research team cover that we receive no revenue from for anything.

There is three ways the team decide coverage. Research Client Demand, Fund Size or investment merit.

The first one is the most important factor and gets most consideration to ensure that our clients get the research they need to do their jobs. Its true many fund companies do buy Morningstar Direct, but that is because it has a pretty compelling set of research and data on themselves, and their peers - tools and other reporting functions - and the information on the broader global investment universe. Give us a call sometime, we would happily go through our process with you.
Greg

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