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Smartkarma Challenges Traditional Investment Research Services

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Smartkarma is on a mission to break the mould of traditional investment research services with an independent, cloud-based platform that curates research from independent providers and allows users to consume the research by paying a per user subscription. The platform operates dynamically to make all research available to all users in real time, but does not include investment bank research, thus meeting the unbundling requirements of Markets in Financial Instruments Directive II (MiFID II).

The company was founded in 2014, went on to build a beta product by the end of the year, and launched formally in April 2016. Co-founder Jon Foster, explains: “We want to rebuild the market around the production and consumption of investment research. The way content is consumed hasn’t changed in 30 years, there is replication of content, it can be difficult to find facts and data, the cost of producing and buying research is high, and efficiency is low. The economics of the business need to be rethought.”

In line with the company’s views on the research industry, the Smartkarma platform curates research from about 400 individual providers – about 150 companies – that are handpicked on the basis of content and quality by the company. They are paid from the subscription pot using a proprietary algorithm that assesses the value they add to the platform in terms of meeting needs and providing the most relevant content to clients. Foster says 55% to 60% of payments are made to the top 20% of research analysts on the platform, but notes constant movement in that 20%. As well as access to all research in real time, the platform includes a suite of application programming interfaces (APIs).

Subscribers pay $7,500 per user per year to access all written material on the platform – rather than paying at the point of consumption – and can use its search and discovery tools and growing list of analytics. They can also benefit from alarms and contextual features that create predictive reading lists, and can contribute to discussions on the platform, message individual research providers and collaborate with both providers and other consumers. Higher level services, such as phone calls with analysts, are also on offer.

The platform plays well into MiFID II, which requires research unbundling and raises regulatory risks around research valuation and inducements to trade, by providing an alternative and independent research option that is efficient, unconflicted and provides transparency of consumption.

Smartkarma is based in Singapore and, for the time being, its platform is focused on Asia in terms of the research it publishes, although it is used globally by a body of several hundred sovereign wealth funds, asset managers, hedge funds and family offices with investments in the region.

There are plans to extend its reach. Foster says: “The platform works well in Asia, so we are confident it will do the same in other jurisdictions.” Smartkarma is currently setting up an office in the UK.

The company also has a partnership in Asia with Société Générale, which has closed its research business in Asia and instead provides its global institutional clients access to the Smartkarma platform. Foster isn’t sure yet whether the company will make more partnerships along these lines, but is sure about its direction. He concludes: “We will never host investment bank research. We believe the future of research services lies outside investment banking.”

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