In my role, I get to see a lot of thematic changes. Sometimes those changes are obvious and apparent. Sometimes those changes are a little more thematic, take a little longer to connect, and are a little more subtle. Sometimes it takes a while for the pieces to connect, and to see the trend. I’m going to try and connect a few of those disparate pieces for you today, and see if I can show you a broader theme unraveling: specifically, how I think corporate’s relationship with the sell side is changing, and how the sell side can start to think about their relationship with corporates, and how to evolve it. 

Let’s rewind to a few years ago and the introduction of MiFID II and unbundling. As you will know from my historical thought pieces, I’ve been against unbundling since it was first introduced. It wasn’t going to have the effect that regulators wanted (plus, I was sure there would be unintended side effects). I also knew it was akin to Sisyphys pushing his rock up the mountain: it would eventually roll back down, leaving us exactly where we started (but who doesn’t love a challenge?). US regulators weren’t about to be dictated to by European regulators. Brexit has the UK and EU fighting for the financial capital of EMEA (between London and Paris) and both figured removing the unbundling regulation would make them more attractive. Everyone is incentivized to roll it back. 

The industry talked about the impact on the sell side a lot – myself included. We talked about the death of independent research providers, of small brokerages, and the niche provider. We talked about the challenges of regional regulation in a global market. We talked about the resulting economic pressure, and the juniorization of sales. However, most pundits didn’t take it an additional step further: they didn’t talk about the impact to the corporates themselves. Specifically, they didn’t talk about how the corporates would react. In all the commentary I’ve read about MiFID, unbundling, and anything related, lots of people have talked about the impact on corporates (less research coverage, less listings, etc.) but no one specified how they thought corporates would react to all of this. Nothing exists in a vacuum. 

That is what I have been thinking about: how corporates are reacting to the new industry paradigm, and how it changes their relationship with the sell side and buy side. 

One of the unique insights we have is seeing where our users go when they leave their current employer. We have the benefit of providing a valuable product that users actually like (which is one of the reasons we’ve never lost a client), which means they reach back out to us when they land at their new firm to get up and running again. An interesting trend we’ve been seeing is a surge in the number of sell side users going to take IR roles over the last few years. 

This makes sense: if the sell side isn’t spending as much time ‘telling your story’, then you have only one option: to tell it yourself. Hiring someone from the sell side who used to cover institutional clients (the same clients you’re trying to get in front of) is a smart idea. Those ex-sell side users, who are now IR professionals, are focused on telling only one story now: their own.

So if you have corporates essentially building out their own institutional sales team, and increasingly driving their own buy side engagement, what does this mean for their relationship with the sell side? In my view, there are some massive opportunities for those who seize them. First, it means changing how you (the sell side) think about corporate customers to more of a buy side-esque mentality. Second, it means leveraging the unique data and perspective your firm has to add value and enhance their process and provide a unique perspective which can’t be replicated at your peers.

It’s a shift in mindsetfrom “we connect corporates with the buy side” to “we support and enhance the connections between the corporates and buy side”. I’m sure that idea scares some investment bankers, but if anything it’s closer to mirroring the relationship the sell side already has with the buy side. More of an enhancement than a dependence. 

A few examples:

• Provide ongoing perspective and insight: I’ve written about this before, but Investment Banking is having its ‘morning note’ moment. The focus on staying in front of corporate clients, putting out regular value-add content, and using the engagement data to drive timely conversations. This can be from the bankers themselves, but can also leverage market commentary and research. The focus is on building your brand, staying top of mind, and having timely conversations. 

• Support their targeting efforts: as corporate IR teams build more internal capacity and get focused on targeting specific funds and buy side individuals, brokerages can leverage their internal data to support that effort. Reaching out to a corporate to say “who are you trying to get in front of?” then sharing where the brokerage has the best relationships is going to be the future. I could even see brokerages entitling major corporate clients to get some level of access where they could see the ‘strength’ of the relationship, and understand quantitatively which brokerages can help them with which clients. 

• Help them decipher their own data: as corporates get more focused on telling their own story to institutional clients, they are also generating their own engagement data. It shouldn’t be a surprise that Street Context is seeing a growing number of corporate clients. The sell side, and investment banking teams, can help corporates review this data, and add their own perspective: highlighting and interesting trends or opportunities, clients they have a strong relationship with, or where they are seeing a corresponding macro shift in engagement in their own data.

• Provide data driven marketing opportunities: as brokerages get more data about content engagement and impact, they can work with corporates to be proactive about where they should market, and who they should see, by providing their own data lens. The ability to turn that data around quickly, and give an actionable next step is key: “we sent this out, it got way more engagement than normal, we think you should go marketing in these regions” would be a great example. 

• Maintain relationships and access: it’s very normal on the markets side of the business to track a client moving from Hedge Fund A to Hedge Fund B, and help them maintain access and eventually get back up and running. Additionally, most brokerages provide buy side clients with ‘garden leave access’ to make sure they maintain a strong relationship in between roles. This will be as important on the corporate side, making sure someone who moves from Corporate A to Corporate B also gets the same attention and focus on the transition, making it seamless and providing continuity. 

Unbundling and MiFID changed how brokerages and investment banks interact with the markets. We’ve talked a lot about how they’ve reacted to those changes. It also changed how corporates interact with the markets. The industry (myself included) have spent very little time discussing how they are reacting to those changes. 

As Newton once said, sitting under his apple tree in England, “every action has an equal and opposite reaction”. It seems in that same fair country, with the unbundling apple dropping on the industry’s collective head, we failed to think about what the corporate reaction would be. Now we’re getting some insight into that. 

Corporates are changing how they interact with the buy side and markets more thematically. The way investment banks engage with corporates is also continuing to change, and there is a major opportunity for firms to be the first to adapt to that change. As always, we’re here to help

Blair Livingston

CEO

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