The City of London's Evolving Landscape: A Tale of Analysts and Regulation
In the dimly lit attic of my home, I stumbled upon a treasure trove of financial journalism's past. Among the dusty notebooks and forgotten clippings, a collection of thick, leather-bound volumes caught my eye. These were the Extel analyst directories, a testament to the golden age of financial reporting. Each page was filled with the names of analysts, their sectors, and my own scrawled notes on their personalities and accessibility.
As a financial journalist in the 1990s, these directories were my Bible. They were the key to unlocking the secrets of the City, providing direct contact information and insights into the analysts who shaped the market. The annual Extel awards, a grand affair at the Guildhall, were the highlight of my year, with the late Alistair Darling as a guest speaker. It was a time when the City's Oscars were still a prestigious affair, and the analysts were the stars of the show.
Fast forward to the present, and the landscape has changed dramatically. Extel, once a cornerstone of the financial industry, now operates in a vastly different world. The introduction of MIFID II in 2018 dealt a significant blow to equity research, forcing brokers to charge separately for analyst publications, a shift that particularly affected the small and mid-cap segment of the UK equity market.
The numbers tell the story. In 2007, there were 29 small and mid-cap retail analysts, but today, that number has dwindled to just 17. Support services analysts have also seen a decline, from 26 to 20. The once-vibrant list of stalwart names like Investec, Peel Hunt, and Shore Capital now includes the ghosts of brokers past, such as Bridgewell Securities, Oriel Securities, and Seymour Pierce.
Consolidation has been relentless, with Numis Securities acquired by Deutsche Bank, Panmure Gordon merging with Liberum, and Stifel closing its UK equities business. Sector coverage has also shrunk, from 18 individual sectors in 2007 to just nine in the latest rankings. It's a stark reminder of the challenges faced by the industry.
However, there are glimmers of hope. The Financial Conduct Authority's Investment Research Review in 2023 softened the rules, allowing asset managers to bundle payments for research and trade execution once more. This has sparked a potential recovery, as Extel CEO David Enticknap notes, "The seeds are there. But research has to be valued. The buy side has to value it. If there's research, liquidity will follow."
Enticknap's optimism is well-founded. The City of London, with its deep talent pools and vibrant tech scene, is an attractive destination for young graduates. However, enticing them back to the world of equity research may be a challenge. As Ian King observes, the allure of tech fortunes may overshadow the traditional path of becoming a broker's analyst. Persuading the next generation that this noble calling is still relevant will be crucial to the London market's revival.
As the City of London continues to navigate the complexities of regulation and market dynamics, the story of the analysts and their directories serves as a reminder of the industry's evolution. It is a tale of change, resilience, and the enduring importance of research in the financial world.
