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- The valuation process will need to capture the value of research to the client both when it encourages the asset manager to act but also when it discourages it. The focus should therefore be on level of use as well as influence, as opposed to the resulting investment activity alone. The RPA Committee will oversee the valuation process.
- An asset management firm will define its own research valuation policy and make this available to clients.
- The valuation process will, in some instances, identify a constant and fixed value to a product or service; other products or services will have differing value across funds, individuals, and timings. While specific valuation methods might differ between asset management firms, each will ensure that the methods they use are appropriate for the type of funds represented in the research budget, as well as the particular client base invested in them.
- The valuation process will include metrics that assess the usage of research from the specific Provider as well as qualitative feedback that assesses the influence and quality of the Providers’ contributions in the previous quarter, half year or full year. Where predictive accuracy is presented as an important utility by external providers, it can also be used as long as it can be reasonably tracked.
- Consumption metrics will be maintained for all external research funded by clients through the RPA. These will cover, for example, analyst meetings, telephone calls, emails or other direct messaging communications, as well as the accessing of research platforms, mobile apps, written publications, quantitative models and conference calls, and customized solutions. They will also be available for any expert network or corporate access activities funded by clients. Usage metrics may concentrate on certain types of engagements and omit others, however there must be a clear process to confirm that research providers represented in the budget are being consumed.
- Research voting structures can be used to quantify the influence component of valuation. When used as a valuation measure firms will need to ensure that they are sufficiently robust to assess external research requirements ex ante and in monetary terms. This will involve:
- Scrutiny: Voting results and commentary will be analysed in the relevant monthly RPA meeting. Where explanations provided are insufficient or the reasoning is insufficient further clarity will be requested and recorded as an appendix to the vote documentation.
- Accountability: Individuals involved in the vote will have to provide sufficient explanation and detail to justify their allocations in order to qualify for access to the external research being valued.
- Alignment: A vote will bind the individual Portfolio Manager (“PM”) to the supply of Research that they can expect to receive. If they do not vote for a research provider they cannot receive research from it, even if a colleague within the same fund has voted for that provider and has access accordingly.
- Asset managers will communicate to their research providers instructing them to desist from sending unsolicited and unpaid substantive research, reminding them of their responsibilities not to provide inducements under the Delegated Acts.