The City of London's financial landscape is undergoing a quiet revolution, marked by the decline of a once-vibrant community of analysts. This transformation, largely driven by regulatory changes, has left a void in the market, impacting both the industry and the broader economy. As a seasoned observer, I find this shift particularly intriguing, and it prompts me to reflect on the broader implications and the future of this critical sector.
The Extel Awards and the Changing Face of Analysis
In the 1990s, the Extel awards were a highlight for financial journalists, offering a glimpse into the inner workings of the City of London. These awards, now a mere shadow of their former self, once celebrated the best analysts in their respective fields. The event, a lunch at the Guildhall, was a must-attend affair, with guest speakers like the late Alistair Darling, who later became Chancellor of the Exchequer. The awards were, as one journalist put it, 'The City's Oscars'.
However, the landscape has shifted dramatically. The introduction of MIFID II in 2018, aimed at enhancing investor protection and market transparency, dealt a significant blow to the small and mid-cap segment of the UK equity market. This directive forced brokers to charge separately for research, a change that has led to a sharp decline in analyst numbers. In 2007, there were 29 small and mid-cap retail analysts; today, that number has dwindled to just 17.
The Impact of MIFID II
The impact of MIFID II is particularly evident in the small and mid-cap sector. David Enticknap, CEO of Extel, notes that while the directive did not deal a fatal blow, it certainly caused significant pain. The consolidation of brokerages, with names like Bridgewell Securities and Oriel Securities now a distant memory, is a testament to this. The number of sectors covered in the UK SMID survey has also fallen, from 18 in 2007 to just 9 today, with sectors like Chemicals, Metals & Mining, and Transport & Logistics disappearing.
The Way Forward
However, there are signs of hope. The Financial Conduct Authority has softened the rules, allowing asset managers to bundle payments for research and trade execution once more. This change, according to Enticknap, could be the catalyst for recovery. He believes that if research is valued, liquidity will follow, and young talent will return to the industry. But this will require a shift in mindset, away from the pursuit of tech fortunes and back towards the City.
The Broader Implications
The decline of analysts has broader implications for the UK economy. The loss of these professionals, who provide critical insights and analysis, could impact the overall health of the financial sector. It also raises questions about the future of investment research and the role of young talent in the industry. As someone who has witnessed the evolution of the City, I find this transformation both fascinating and concerning.
Conclusion
The City of London's vanishing analysts are a stark reminder of the impact of regulatory changes on the financial landscape. While the industry has adapted, the loss of these professionals has broader implications. As we look to the future, it is clear that the City must find a way to entice young talent back into the fold, or risk further decline. The challenge is clear, and the solution will require a combination of regulatory flexibility and a renewed focus on the value of investment research.
