Thursday, October 18, 2007

Buy Side Firms To Spend $586 Million on Research Tools

Technology Insight ...

“TOWERGROUP: Global Buy-Side spending on research technology will reach $1.1 BILLION by 2010”

The Tower Group Buy-side research has become a complicated process that aggregates internal analysis, broker research, independent research, outsourced analysis, and the use of other research tools. As a result, investment managers are demanding automation to better manage their expanding research operations and integrate information from multiple sources. As these changes move through the buy-side, brokerage firms are also increasing their focus on automating their research offerings in a bid to drive greater cost efficiencies and more effective distribution of both proprietary and third-party research.

TowerGroup estimates global buy-side spending on research technology will increase at a compound annual growth rate (CAGR) of 22 percent, from $586 million (USD) in 2007 to $1.1 billion by 2010. During this period, U.S. spending will more than double from $372 million to $692 million, while European buy-side firms spending will increase by 20 percent from $144 million to $257 million. Asian spending will also rise substantially, but will remain at one-fifth that of U.S. buy-side firms.

What types of technology are these firms buying? The report identifies six categories of research tools: intelligent search and data mining, research performance measurement and management, fundamental data (eg data aggregation), trading idea platforms, research management, and commission allocation and management systems.

The advances in Web-based technology - XML-based tagging, application service providers (ASP), Web 2.0, and portal technology - will have enormous application to automating the research business. TowerGroup believes this use of technology will affect the research business in three ways:

# Alter the cost structure of research departments as human staff is augmented with (and often replaced by) automated systems to perform research
# Change the economics of the research business, allowing brokerage firms to reduce their cost base in providing research
# The wide-scale use of technology will enhance returns for investment managers and add to alpha generation as markets become efficient.

Source: Tower Group October 17, 2007

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