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March 8, 2019

Our Weekly Newsletter

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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.

Mifid II rules to saves a billion

According to the Financial Conduct Authority (FCA), Mifid II rules could save UK fund managers nearly £1bn over the next five years due to a cut in spending on investment research. FCA CEO Andrew Bailey also observed that technology is changing the nature of research – with managers increasingly using more electric, ‘low touch’ channels – and how it is supplied, monitored and valued by the buy side. (From IR Magazine, 27 February 2019)

Car finance caught in the headlights

The FCA has found that drivers using debt to finance car purchases may have been overcharged on their interest payments due to the way lenders pay commissions to motor dealers. The regulator’s investigation suggests some motor dealers are inflating charges to customers by over £1,000 in some cases to obtain bigger commission payouts. The FCA is currently assessing its options for addressing the issue and may call on the car finance sector to revisit how it manages vehicle loans. (From Financial Times, 04 March 2019)

Refreshing results

Insurtech may be finally coming out of its shell – or at least be encouraged to do so – as industry darling Lemonade begins to cut its losses. Breaking into the insurance sector was deemed to be impossible, but with the famed New York-based insurance disruptor more than halving its underwriting losses since 2017, the UK market could see further tech stars take on the incumbents. (From Insurance Post, 5 March 2019)

Private Equ(al)ity

When companies were forced to publish their gender pay gaps last year, the private equity sector was left red faced at its large gender imbalance. Worse, a new survey by data tracker Preqin found that 2018 figures show little improvement, despite numerous initiatives. Without significant changes, more pressure might be put on PE to drop the ‘boys club’ culture. (From Private Equity News, 1 March 2019)

It’s guidance, not advice

The merger of Pension Wise, the Money Advice Service and The Pensions Advisory Service has been given a name this week, with the new single financial guidance body christened the Money and Pensions Service. Following its unveiling, industry experts welcomed the government’s decision to move on from labelling a guidance service as “advice”. Steven Cameron, pension director at Aegon, said the body’s new name would help individuals recognise the difference between the guidance it will offer and the advice they can obtain from IFAs, financial planners and wealth managers. (From FT Adviser, 04 March 2019)

Data gathering or insider trading?

Advancements in technology are allowing market movers to see and know more than ever, which in turn is enabling them to make more precise and informed decisions. But how far can data-driven intelligence go before it is considered insider trading?

Alternative data sources, artificial intelligence and new monitoring hardware are all helping investors see around CEO hubris and attempted spin. Take, for example, the recent claims from Tesla’s Elon Musk during an investor call that the firm was set to produce 500,000 cars in 2019. Instead of taking him on his word, investors turned to a data source that was able to find how many insurance policies have been taken out by new Tesla drivers, giving a much more precise estimate as to the future of Tesla sales.

The use of third parties to seek out forecasts is now the norm. As a result, law firms are now advising analysts and investors whether their data gathering – perhaps by buying data from ancillary third parties working with a listed company – is fair research or insider trading.

But investors will seemingly look for any advantage they can. An advertisement tracking tool initially designed for media companies is now being used to assess if companies are successful or struggling to meet numbers – the theory goes that a flurry of adverts near to reporting time might indicate a business is failing to meet quarterly targets.

It’s not just big data that’s being used to read and forecast the markets. New Artificial Intelligence (AI) tech is now able to listen to and interpret thousands of earnings calls, noting tone and sentiment as well as documenting claims and statements by the companies, saving analysts time and effort in trying to uncover the truth themselves.

The quest for data is also going galactic – investment businesses are now buying satellite surveillance data to bet on market movements. Counting cars in retail car parks may give an indication on consumer demand, or the number of oil tankers coming into port could give an investor an idea of where oil prices may or may not go.

The debate over what’s fair game and what’s an illegal edge will continue as technology allows us to dig up more information on a business and its customers. But one thing is clear: the age of insiders sharing details from within a company is now being superseded by the “outsider traders” looking to get a jump on the market.

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