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The World Shut Down. This Is Who Hedge Funds Called.
Welcome to the All-America Research Team: Hedge Fund Cut.
From Locked ranking
JPMorgan Chase & Co. reigns as Wall Street’s top research firm. But for the last two years, hedge funds have had a different favorite: Bank of America.
As the coronavirus spread through the United States, shutting down businesses and upending earnings expectations, hedge fund clients inundated analysts at BofA Securities, according to the bank’s head of Americas equity research, Brett Hodess.
“Typically the mix of calls is probably 60 percent outgoing, 40 percent incoming,” Hodess estimated. “It flipped this year to be more like 60 percent incoming and 40 percent outgoing — and not because outgoing calls dropped.”
The flooded phone lines accompanied a surge in readership for BofA’s research reports, as both hedge funds and long-only clients sought clarity on the crisis unfolding around them. BofA’s analysts met this spike in demand by producing more research and more analysis, publishing 10 to 15 percent more content than last year, according to Hodess.
“There are so many more things that need to be covered and talked about,” he told Institutional Investor. “Readership is up dramatically — well over 20 percent overall, and even more than that for certain hedge funds.”
But don’t just take BofA’s word for it. Trust nearly 1,000 hedge fund professionals who voted on this year’s All-America Research Team.
BofA Securities leads the 2020 All-America Research Team: Hedge Fund Cut, II’s annual ranking of hedge funds’ favorite research providers. The bank debuted at No. 1 last year via a new commissions-weighted voting system that reflects where hedge funds are spending money on research.
JPMorgan — which placed first in the overall All-America Research Team — again ranked second among hedge fund voters. Morgan Stanley and Evercore ISI also repeated their positions from the 2019 hedge fund survey, placing third and fourth respectively.
There was one big change in the top five firms, reflecting a similar shift seen in the broader All-America Research Team: Credit Suisse jumped four spots to nab the No. 5 position, bumping Citi down to seventh place.
[II Deep Dive: In a Disastrous Year, the All-America Research Team Shines]
These rankings reflect the research providers that hedge funds turned to during an unprecedented public health crisis. But they also reflect ongoing changes in hedge fund research habits, according to BofA’s Hodess. “Even before Covid-19, over the last several years we definitely saw a trend of increasing ask-per-service from the hedge funds,” he said.
For example, Hodess reported steadily rising demand for direct access to knowledgeable individuals, whether through bespoke corporate access events or one-on-one meetings with company executives and other business and policy experts. Interest in these types of services has continued to pick up even as everything has gone virtual, he added. “Our attendance at a lot of corporate access events is up about 100 percent year-over-year,” Hodess said. “Now that people don’t have to travel we have a lot more hedge fund portfolio managers attending our conference sessions.”
Of course, there’s also that other main product: research. Hodess has observed hedge funds taking a “barbell approach” to research, consuming both very specialized, company-specific reports as well as big-picture thematic and macro analysis.
“Our collaborative work that goes across sectors and regions — that’s our highest read product,” Hodess said.
While the pandemic has certainly stoked readership for BofA Securities and its top-ranking peers, a bigger trend is likewise driving research consumption: consolidation. Recent years have seen hedge funds narrow their sell-side provider lists, driving a larger proportion of research dollars to a small number of top firms.
“We’re seeing hedge funds consolidating their research consumption with fewer companies,” Hodess said. “Clients are becoming more discerning with what they’re reading.”