June 21 (Reuters) - Global banks could see their revenue from equity research fall as much as 30 percent over the next three years, according to a new report from McKinsey & Co.
The study, released on Wednesday, said weak performance among asset managers was driving the shift toward lower research revenues. New regulations that will force investors in the European Union to pay for research directly was another factor, it said.
The traditional investment management industry has posted poor results over the last decade, with more than 80 percent of active managers underperforming their benchmarks, McKinsey said in its report.
As a result, funds are becoming more selective about how they spend their research dollars, the global management consulting firm said.
In addition, a new European regulation called Markets in Financial Instruments Directive, or MiFID II, means banks will be required to put price tags on their research. Previously, research was bundled within trading commissions with asset managers and hedge funds determining how to allocate their research budgets through a vote.
Banks have not yet slashed research department jobs, despite the outlook for shrinking revenues, but McKinsey said big cuts could come in the next three or four years.
For banks to compete, McKinsey said they must invest in new types of research that their investor clients find useful, including those that incorporate technologies like big data and artificial intelligence.
They must also offer more dynamic pricing for research and reposition coverage to focus on geographic regions where they have proven expertise, McKinsey added. (Reporting by Olivia Oran in New York; Editing by Tom Brown)
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