Tag Archives: Financial Research Companies in India

Introduction

Around the globe, there is a trillion-dollar business of investing in all sorts of assets like equity, both public and private, real estate, and upcoming assets like cryptocurrencies. Once the investment is made, the task on the part of the investor shifts to investment management. There are many activities of investment management that could be outsourced and that is what leads us to analyze the stream of investment management outsourcing. Investment management and hence investment management outsourcing takes all forms depending on the asset being invested in, and the prime business of the asset or investment manager.

Here we take a look at major activities of each type of investment manager or asset manager which could be effectively outsourced to save on costs and improve quality.

Who Should Outsource Investment Management and How?

Outsourced Investment Management

Outsourced Investment Management for different types of Asset Managers

Private Equity and Venture Capital firms

The underlying asset that a Private Equity or a Venture Capital firm invests in is equity. Sometimes it’s for stocks listed on exchanges but most of the time these are private investments, the target of which are start-ups are unlisted companies.

In the PE/VC value chain of investing, there are activities like Fundraising, Deal origination, Deal execution, and Portfolio Management. Quite a few activities in these departments are outsourceable. For fundraising, the activities like investor reach-out, investor profiling, CRMs, newsletters, white papers, and data management jobs could be effectively outsourced. Regarding, Deal origination, the deal pipeline management has a great potential of outsourcing along with initial due diligence. Deal execution processes like valuation and financial modeling are templatized and could be considered. Portfolio management has varied activities and outsourcing potential vary as per the nature of the business of the portfolio companies. Most activities related to Strategy and Marketing have great potential for outsourcing when it comes to Portfolio Management.

Hedge Funds

For the most common type of hedge fund out there, that is a long-short equity hedge fund, multiple activities should be considered for outsourcing. Equity Research is the foremost one. The research that is done for the investors is almost always best to be outsourced. Apart from Equity Research, Fund Administration and Fund Accounting are better done when outsourced. It makes sense from the cost and expertise point of view. Marketing activities almost always have great potential for offshoring.

Real Estate

Managing a real estate asset after the investment comprises standardized work-streams. Most of it relates to collecting data, analyzing it, making reports, and raising red flags if any. Accounting and administration along with research has a great potential for outsourcing

Investment Banks

Investment Banks are into all sorts of assets directly or for their clients. For the varying types of their work pallet, there is varying potential for outsourcing.  For investment banks, activities that are commonly outsourced are Equity Research, Security-based Investment Research, development of excel or other automated models, investment research for private investments, marketing, deal origination, and deal execution. In fact, 30-50% of all activities performed by an investment bank has a solid potential for outsourcing that may be explored

Asset Management Firms

These are for specialized asset managers like managers managing a portfolio of crypto or commodities. There is no one size fits all approach to outsourcing for these asset managers. As a thumb rule, everything related to technology like platform development, automation, website development, or software development can be outsourced. Also, anything that is of support function’s nature like Strategy or Marketing could be looked at.

Models of engagement with the outsourcing vendor

Once you have made your mind to explore outsourcing, the biggest concern is around the way an outsourced vendor or the service provider would work with you and your team. There are three established models of working while outsourcing. These are FTEs, Retainer, and Ad-hoc. Some progressive vendors like Magistral are signing up success-based contracts too.

Outsourcing Engagement Model

Investment Management Outsourcing Engagement Model

FTEs

FTE the most common engagement model for investment management outsourcing.

FTE stands for Full-Time Employee equivalent. It’s like a virtual employee who is operating from a different country. This virtual employee could be coordinated with, on email, video calls, WhatsApp, chats, or any other mode that is suitable to the client and is convenient as per time zone differences. It looks like a person is aligned with the client full time and he works seamlessly with the client. That is always the case, but the vendor, his processes, training, supervision, and culture play a big role in ensuring the continuity of services. A vendor enables the FTE to perform optimally by providing training and desired supervision. The vendor’s processes ensure that the client is insulated from the bad performance of FTE as the work is supervised by more senior resources. In case the individual decides to leave the organization, similarly, qualified and trained professionals are available on the bench for the replacement. That is the reason it makes sense to work with individuals through the service providers who may be an established name in their industry. Working directly through freelancing websites or hiring directly exposes clients to manage costs and risks, which is not the case while dealing with an established service provider.

This also is the cheapest model on per hour basis. But it is inflexible as there may be contractual obligations for a minimum period of support. This case is more prominent when resources are specialized in niche skills

Typical jobs that require FTE engagements are operational, where the offshored team works with the onsite team seamlessly. So, if a task is part of your ongoing investment management operations, mostly it will be outsourced on FTE-based engagement.

Retainer

You know there is a need for outsourcing tasks. At the same time, you think a full-time individual working on these jobs may be overkill. In these situations, where tasks just require some hours every month, the retainer model of engagement comes in handy. Say rather than hiring an FTE or a full-time virtual employee, you would only want 100 hours’ worth of tasks outsourced every month. A retainer is far more flexible than FTEs but costs higher on per hour cost basis. Typical jobs that are suitable for retainer-type outsourcing are newsletters, MIS, reports preparation, and other marketing-related tasks.

Ad-hoc Projects

As the name suggests the engagement is for one-time projects only. A client gives out the scope of the project. The service provider or the vendor provides a proposal that carries, scope of work, timelines, and commercials. The project kicks off after the client signs off the proposal and is paid after the delivery of the project. Almost any project that is strategic and is not expected to be repeated on an ongoing basis is an ideal candidate for ad-hoc based outsourcing. Also, it’s an ideal mode, if you would want to test the services of a vendor before signing a longer-term contract. It is the most flexible outsourcing arrangement as projects may start or end at your convenience, but at the same time, it is costliest in terms of cost per hour basis.

Success Based

Most traditional service providers shy from signing a success-based engagement. The fear stems from the trust deficit, performance fears, and the complications of defining a success scenario. Magistral signs success-based engagements with clients, with whom it has existing relationships. Existing relationships take the risks related to trust deficit and performance. A mutually agreed “success” scenario could also be defined in those situations. The tasks that are outsourced under these arrangements usually relate to fundraising, deal sourcing, and meetings’ set up

Magistral has helped more than 100 clients in outsourcing and offshoring multiple activities related to the Investment Management process. To start a conversation drop a line here.

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.

 

 

 

.Introduction

Equity Research of listed stocks forms a major part of operations in Hedge Funds, Investment Banks, and many Asset Management firms.

Analysts use different methods to conduct equity research, but they primarily aim to determine a stock’s intrinsic value and assess whether it is overvalued or undervalued. Based on this analysis, they issue buy, sell, or hold recommendations to asset managers or their clients.

What makes an equity research exercise comprehensive?

Though equity research exercise could potentially be a theoretical exercise where an Equity Research analyst puts in a few hours’ of efforts, crunch numbers, and comes up with a recommendation.  Analysts almost always prepare these models and simply feed in the P&L, Balance Sheet, and Cash Flow numbers—readily available in the public domain for listed stocks—to determine the valuation and recommendation for the stock.

It is however the further details that determine the quality of the research. These are a variety of sources, qualitative inputs and their quantification, Evaluation of the ongoing news and buzz related to the stock, social media activity, rumors, and the subjective calls of analyst that makes the difference. It’s amazing that some analysts even track the brand of the watch that the CEO wears to the analyst conferences. They make subjective calls on the stock on an information point as minute as that or say body language of the management in a conference call.

If a stock is to watched as closely as needed to take calls worth millions, it’s not possible for an equity research analyst to proceed in a templated way for all the stocks she needs to track. It needs to go much beyond that.

Equity Research Inputs

Parts of a comprehensive Equity Research exercise

Here is what differentiates a comprehensive analysis from a basic one

Sources of Information: Sources of information if more the merrier. Sources of information if diverse allows us to analyze the stock closely. For example, a database that carries information about all the legal cases pending against a company would add color to the analysis that will have a material impact on the overall recommendation for the stock. Usual sources of information are P&L, Balance sheet, and cash flow statements, all of which are publicly available for a listed stock apart from news about the stock, regulatory filings, 10Ks, conference calls, and ESG related compliance documents.

Forecast and Assumptions: A financial forecast is often oversimplified by merely projecting past growth into the future, but that approach is rarely accurate. The core of any robust forecast lies in its assumptions, which must be reasonable and ideally validated by industry experts. Companies may be optimistic about new strategies, but such expectations should be evaluated against industry benchmarks. If a company’s forecast outpaces industry projections, one must examine whether it has outperformed the industry before. For example, if a healthcare firm claims it will lead the market in five years, has it achieved similar milestones in the past? The strength of any financial model depends on the depth and validity of its assumptions—verified by data and historical performance.

Company Valuation Analysis

Equity Quantitative Research focuses on valuing a company using multiple methods to ensure consistency across different approaches. When there’s a significant difference in valuations, the analyst must determine the most suitable value with strong justification. Analysts commonly apply valuation models such as Discounted Cash Flow (DCF) to project future cash flows and discount them to present value. They use Relative Valuation to benchmark the company against its peers and determine whether it’s undervalued or overvalued. They also employ the Sum of the Parts method to break down a diversified business into individual components and evaluate each separately. Risk Assessment is also critical—it identifies potential risks and quantifies their impact on the company’s valuation. Together, these methods help analysts build a more balanced and defensible view of a company’s worth.

Qualitative Assessment

Numbers do tell the story but miss while indicating the future, which is unknown. That is where the qualitative inputs come into play. An experienced analyst can convert these qualitative inputs into quantitative ones that impact the valuation. Some of these qualitative inputs are quality of management, Competitive intensity in the industry, ESG initiatives and risks, and analyzing Porter’s 5 forces. It’s to be noted that Porter’s 5 forces is a highly qualitative model and needs to be put on a quantification scale.

Different institutions approach equity research differently depending on their business and operational needs. Here is how Equity Research differs across institutions

Equity Research for Investment Banks

Equity Research at Investment Banks is as much as a Marketing exercise as it is operational. Usually, an Investment Bank would send stock recommendations to all its current and potential clients. Analysts sometimes avoid detailing these recommendations, as they reserve in-depth research for high-paying clients. They prepare an equity research report for every stock, using a template with similar content across all stocks the bank tracks. It also suggests the buy, sell, or hold recommendations along with the price range to expect for each stock. Detailed equity research is also done for the buy-side. There are multiple research report templates that are available with an Investment Bank.

Earlier the research cost was added to the brokerage cost for an investment bank. Now a regulatory notification in Europe bars Investment Banks from clubbing brokerage and research costs together. This means now research needs to be high quality and needs to be provided only when the client demands. It’s just a matter of time that these regulations catch hold in the United States and other financial markets across the world.

Equity Research for Hedge Funds

Equity Research for hedge funds is done towards the aim of portfolio management and taking long and short positions regarding listed stocks

Hedge Funds are quite secretive about the methodology they follow while picking up stocks. Sometimes firms justify secrecy. As they truly have something unique, but most of the time they use it as a marketing gimmick to avoid further questions about their methodology. Many claim to use Machine Learning and Artificial Intelligence to pick up the stocks. Equity Research in Hedge Fund parlance is the most critical part of Operations. There is also a huge reliance on Technology with trades mostly intraday and sometimes in milliseconds!! But there is nothing that has replaced the good old fundamental analysis.

Hedge Funds also specialize in technical analysis apart from fundamental analysis. Technical analysis uses mathematical formulas to project trends and thus the future stock price for short term trades.

Equity Research for Private Equity

Private Equity usually deals in Private stocks but sometimes they do pick up stake in listed companies as well. Private Equity firms conduct equity research differently from Hedge Funds and Investment Banks. They usually aim to buy a significant stake and therefore access much more information and management bandwidth. It uses that leverage to get and analyze information that is usually not available in the public domain.

Equity Research for Asset Managers

All other forms of Equity Research vary in complexity and methodology. But mostly sticking to finding the intrinsic value of the stock with the aim of finding undervalued stocks for investments. Some Asset Managers specifically perform equity research for retail investors.

Magistral’s Approach for Equity Research

Magistral is an equity research firm that focuses on Fundamental Research to find out the intrinsic value of a stock using multiple sources. We start with multiple sources in our methodology and continually refresh those sources to update the model with the latest intelligence. We also prepare customized Equity Research report. Here is how our Equity Research Process looks like

Magistral' Equity Research Approach

Magistral’s Equity Research Methodology

Our equity research services are customizable and scalable as per clients’ requirements. Magistral has delivered multiple Equity Research projects in the past

About Magistral

Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modeling, Portfolio Management and Equity Research

For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact

About the Author

The Author, Prabhash Choudhary is the CEO of Magistral Consulting and can be reached at Prabhash.choudhary@magistralconsutling.com for any queries or business inquiries.