The year 2022 has been a challenging one for most investors — “including hedge funds,” according to Marko Kolanovic, chief global market strategist and co-head of global research at JPMorgan Chase & Co.
Throughout the last ten months, hedge fund managers have had to navigate high levels of volatility, as well as macroeconomic and geopolitical risks, Kolanovic said. “The most important one is the surge of inflation and related response of central banks and bond markets,” he added. “Also critically important was the geopolitical escalation in Europe and its impact on global growth and the commodity and bond markets.”
Equity investors were “profoundly impacted” by those macro developments, he said.
“No one could ignore macro,” confirmed Katy Huberty, global director of research at Morgan Stanley. “And when macro is the dominant driver of risk assets, it’s harder to generate alpha. But our strategists were recommending relative value strategies across almost every asset class, which clearly plays to these clients’ strengths.”
Among the winners of the hedge fund industry have been platform multi-strategy funds, which have seen impressive growth, Huberty said. “And we have been growing our relationships with them accordingly,” she said. She credits Morgan Stanley’s long-term strategic commitment to investing in its people, data, and technology platform.
“Our research team’s time spent with our hedge fund clients is higher this year versus last year — but importantly, that greater level of engagement has been largely consistent across our overall client base,” she said.
It appears to have been time well spent: Hedge fund managers have once again crowned Morgan Stanley as Wall Street’s No. 1 research provider in Institutional Investor’s 2022 All-America Research Team: Hedge Fund Cut.
The firm defended its title after its rise last year from third to first place, while also adding five total team positions — including four first team spots — to bring its 2022 total to 51.
The rest of the top five also remains unchanged from last year: BofA Securities took second place, while JPMorgan placed third. Evercore ISI and UBS also repeated their fourth and fifth places, respectively.
This is the fourth year of the All-America Research Team survey’s commission-weighted results, which more accurately reflect how the buyside values and rewards the sell-side for their research advisory services. (Previous iterations of the ranking were weighted by assets under management.)
This year, the increased market volatility has led to greater demand for time with analysts, including from JPMorgan’s wide array of hedge fund clients, according to Nicholas Rosato, the firm’s managing director and head of North America Equity Research for the firm. These interactions are increasingly happening outside of the virtual world, he added.
“Our analysts are being proactive and responding to our clients with expert views and insights, helping them navigate this period,” Rosato said. “As Covid has become more manageable, our analysts have materially increased in-person engagements and we’ve seen a resurgence in interest in and attendance to our conferences and events.”
Thanks to JPMorgan’s technological investments, analysts have been freed up to increase both in-person and online engagement, according to Rosato, as the firm improved the myriad of ways the buy-side can consume research. “We have been putting significant effort into enhancing our distribution channels, getting our clients the insights they need, when they need them, and how they want them—this includes enhancements to our Morgan Markets website, podcasts, videos, conferences, events, and data offerings,” he said.
Likewise, BofA Securities has seen increased demand from hedge fund clients for access — “to company management teams, policy makers, and industry expert intelligence, delivered by our analysts alongside high-quality fundamental industry- and company-specific equity research,” according to Daire Browne, head of Americas equity research for BofA Securities.
To that end, the firm in April launched the Bank of America Institute, a think tank aiming to provide insight to the general public and clients, free of charge. “The institute is dedicated to uncovering powerful insights that move business and society forward,” he added. “Drawing on data and resources from across the bank and the world, the Institute delivers important, original perspectives on the economy, ESG, and global transformation.”
At Morgan Stanley, there’s no dedicated hedge fund research product — but that hasn’t stopped the firm from succeeding with that client segment. “Our strategy is to provide differentiated insights to help all investors make decisions that generate alpha, and our product array reflects that strategy,” Huberty said. “An analysis we refresh every few years identifies companies that we believe are high-quality operators with resilient competitive advantages that should generate long-term stock outperformance. And we offer several products that highlight shorter-term opportunities based on specific catalysts.”
According to Huberty, Morgan Stanley’s clients appreciate the firm’s in-depth, collaborative, global deep dives across sectors and asset classes. “That is the hardest type of research to do, but it tends to be the most impactful, she said. “This effort is tied together by close interaction among our economists, strategists, and analysts. This connectedness gives us a unique lens that enables comprehensive analysis of far-reaching themes like the energy transition, supply chain restructuring, tech diffusion, food security, and the post-Covid consumer reversion. But our reach and collaborative culture also enable us to pivot strategically as well as tactically.”
Added Huberty, “We intend to keep providing differentiated research into economies, markets, industries, and companies that will arm [clients] with the insights they need to succeed into 2023 and in the long term.”