Key Takeaways
- • Global hedge fund assets reached an all-time high of $4.3 trillion at the end of Q2 2021, driving increased demand for high-quality equity research from sell-side providers like Morgan Stanley and Bank of America.
- • Morgan Stanley's equity research department has experienced consistent growth in time allocation to hedge funds over the past decade, including through and after the Covid period, according to David Adelman, director of equity research for the Americas.
- • Platform hedge funds—sector-focused vehicles with individual or multiple portfolio managers concentrating on specific sectors—have emerged as a significant growth driver, requiring rigorous, disciplined research and substantial sell-side support.
- • Equity research providers are adapting their product offerings to serve an increasingly diverse hedge fund client base with varying investment strategies and time horizons, moving away from the homogenous institutional investor base of prior decades.
Summary
The hedge fund industry's expansion has fundamentally reshaped equity research demand, with Morgan Stanley and Bank of America reporting sustained pressure to deliver specialized, high-quality insights to a rapidly evolving client base. According to David Adelman, director of equity research for the Americas at Morgan Stanley, the firm's research department has consistently increased its time allocation to hedge funds over the past decade, with growth occurring "before, through and post-Covid." This trend reflects both the industry's strong performance metrics and structural changes in fund composition.
Global hedge fund assets surged to an all-time high of $4.3 trillion at the end of Q2 2021, according to BarclayHedge data cited in the article. Adelman attributed this growth trajectory to two primary dynamics: first, strong performance and positive asset flows into the broader hedge fund industry; and second, the substantial expansion of platform hedge funds—sector-focused vehicles with individual portfolio managers or multiple portfolio managers dedicated to particular sectors. These platform structures operate with rigorous, disciplined methodologies that rely heavily on sell-side research input, materially increasing demands on research analysts across the investment banking sector.
Bank of America's head of Americas equity research, Brett Hodess, corroborated this evolution, noting a fundamental shift in the institutional client landscape. Whereas the equity research function served a relatively homogenous base of large, long-only institutional investors fifty years prior—typically with minimal portfolio management teams—the current client universe spans a broad range of investment approaches and structures. This diversification necessitates differentiated research products tailored to varied client objectives and investment horizons, rather than standardized research deliverables. Morgan Stanley's positioning reflects this shift, with the firm emphasizing research products designed to deliver differentiated insight rather than generic hedge fund-specific offerings, underscoring the industry's movement toward bespoke, analytically rigorous research capabilities.
Global hedge fund assets surged to an all-time high of $4.3 trillion at the end of Q2 2021, according to BarclayHedge data cited in the article. Adelman attributed this growth trajectory to two primary dynamics: first, strong performance and positive asset flows into the broader hedge fund industry; and second, the substantial expansion of platform hedge funds—sector-focused vehicles with individual portfolio managers or multiple portfolio managers dedicated to particular sectors. These platform structures operate with rigorous, disciplined methodologies that rely heavily on sell-side research input, materially increasing demands on research analysts across the investment banking sector.
Bank of America's head of Americas equity research, Brett Hodess, corroborated this evolution, noting a fundamental shift in the institutional client landscape. Whereas the equity research function served a relatively homogenous base of large, long-only institutional investors fifty years prior—typically with minimal portfolio management teams—the current client universe spans a broad range of investment approaches and structures. This diversification necessitates differentiated research products tailored to varied client objectives and investment horizons, rather than standardized research deliverables. Morgan Stanley's positioning reflects this shift, with the firm emphasizing research products designed to deliver differentiated insight rather than generic hedge fund-specific offerings, underscoring the industry's movement toward bespoke, analytically rigorous research capabilities.
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