Hedge funds cut back on equity research Hedge funds are sharply reducing spending on equity research from brokerage firms, in a sign that volatile markets are hurting demand for brokers" lucrative client services. Institutional investors cut spending on research services, such as analyst notes and trading ideas, to $6.2bn in the twelve months to March 31, down 9 per cent from the prior year, according to a survey by Greenwich Associates. Hedge funds cut back particularly hard, with the share of their brokerage fees devoted to research falling by a fifth. Total brokerage fees, which include commissions for trading and execution as well as research, have fallen in each of the last four years, but spending on research had held up well until now. "While the overall commission pie has been shrinking, the research component has tended to be stickier, as institutional investors saw it as something of a fixed cost," said John Colon, one of the author's of the report. But with trading and returns still subdued, institutions are asking whether they can afford anything but the most essential services, which could be significant for brokers. Over the past decade institutional investors have pressed for brokers to disaggregate fees to make it clearer what proportion of their fees are used to fund "core" trading and execution activities, as opposed to "value-added" research activities. At the same time the rapid dissemination of research online has also made institutional investors less willing to pay a premium for access to notes and company specific analysis, forcing analysts to offer additional services, such as providing their institutional clients with access to executives at the companies they cover. "The role of the analyst is changing from someone who publishes research, to someone who can put an investor in front of company management," said Mr Colon. In the last year almost half of hedge fund spending on research was directed to securing meetings with corporate executives, according to Greenwich, while just 7 per cent was used to fund company specific studies, the traditional staple of brokerage.