What's the point of equity research reports...

... when asset management firms and hedge funds already hire their own analysts? For example, fidelity hires graduate equity and fixed income analysts, and hedge funds recruit analysts from IBs, so why do they need equity research reports from banks. Who actually uses them?

Reply 1

gr8wizard10

there are investment strategies that require their usage (earnings surprise), and many smaller funds use the info, M&A we use to draw assumptions and for due-diligence/financials etc.. etc..

Reply 2

Ladbants

Original post by gr8wizard10

there are investment strategies that require their usage (earnings surprise), and many smaller funds use the info, M&A we use to draw assumptions and for due-diligence/financials etc.. etc..

Thanks

Reply 3

Axion

Original post by Ladbants

Thanks

To provide a fuller answer:
Buyside analysts are not as well-tuned to individual companies. They cover far more companies, to a far shallower depth of knowledge. Sell side analysts tend to cover up to 20 companies (often around 10), but in as good depth as the board of these companies.

Buyside analysts often use sellside models and tweak them for their own assumptions. The buyside only really care about companies they think have big upside, whereas much of the sellside research will come to a 'hold' rating or equivalent, which is basically when the analyst doesn't have a big call either way.

A huge part of sell side is corporate access; the sell side have ties to management of the big companies and to an extent are their mouthpieces (with added analysis on whether what mgmt saying is accurate/likely to be false). The buy side don't have these depths of ties, not least because many investors are short-termist.

The written research really is a byproduct of the rest of the role. Sell side will often do long-term thematic pieces, that the buyside won't bother with, and like I said, the buyside often steal the sell-side models and then just make their own adaptations.

Readership of notes is probably really low - most readers probably give up after page 1 unless they are looking for something specific. The sell side know that, but they still have to produce them as it's distributed across the relevant geographies. It's decent marketing too.

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What's the point of equity research reports...

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