Here's how the 'Spotify for the investment research' lets analysts make money from the beach
Last month, Nomura, one of the largest Japanese banks, slashed hundreds of jobs as it shut down parts of its European equities business, with the research department taking the brunt of the losses.
The industry "has been a highly dysfunctional part of the broad financial spectrum for a very long time," according to Smartkarma co-founder Jon Foster.
Foster, along with Raghav Kapoor and Lee Mitchell, came up with the idea for Smartkarma in 2014 after a career in independent research and portfolio management.
Smartkarma is aiming to become the "Spotify for investment analysis," according to Foster. It gives analysts a publishing tool for their research notes and a marketplace on which to sell them.
Smartkarma sells subscriptions to investment banks and asset managers to gain access to the notes, paying the analysts a monthly fee based on the reach and influence of their articles.
At the moment, the payouts to the roughly 400 analysts on Smartkarma's books don't quite match the salaries analysts get at established firms, but they're enough "to pay the bills," according to Foster.
And that should give analysts heart. The industry is changing. European financial rules known as Mifid II make it harder to bundle the cost of research into fees paid by investors to fund managers and investment banks, breaking a chain of commission payouts to the research analysts.
With analysts' revenue streams under threat, so is their job security. Big investment banks are already looking to slash cost centres, putting large research departments at risk.
"What happens to those guys and what happens to the skill set? They can set themselves up on a platform that allows them to do their job independently. We've created an alternative career path for analysts. People can come straight off the bank desk and set themselves up here," Foster added.
Foster didn't give names of clients but said they included sovereign wealth funds, large global asset managers, well known hedge funds and smaller firms. The business isn't profitable yet. For that it needs scale - more analysts and more clients - but it's been growing strongly for an idea conceived in an attic in 2014.
Smartkarma uses an algorithm to help decide how large a slice of the revenue pie each analysts should get every month. The number of times a note is downloaded is a key metric for pay but not the only one. Smartkarma also monitors how much client engagement an analyst has over its messaging network.
"A well-regarded analyst has the ability to make a living" on Smartkarma, Foster said. "If you've just lost your job, this is a way in which you can pay your bills." Even from the beach.