Institutional Investor ("II") Ranking - The Beauty Contest

Institutional Investor ("II") Ranking - The Beauty Contest

This week I explain II ranking. II stands for Institutional Investor, a magazine company that annually surveys public equity investors about their favorite Wall Street research analysts. The votes are aggregated and weighed by trading commissions to rank top analysts by sector.

Let us set stage by reintroducing the players (Please refer to my prior article to understand the equity research ecosystem):

  • Buy-side: Public equity investors – mutual funds, hedge funds, family offices, etc.
  • Sell-side: Investment bank that houses the equity research function
  • Companies: Businesses whose stocks are publicly traded

Most important thing to know: Being II ranked does not mean an analyst is a good stock picker. Hell, the sell-side equity research profession was not built under the premise of making money for clients (weeert?!)

However, being II-ranked does mean a research analyst is useful to the buy-side in some way, which includes:

  • Company management access
  • Channel checks
  • Industry knowledge
  • Fun client events
  • Knowledge of market flow
  • Making money (you should not be surprised how few choose this route)

How does II ranking matter to the constituents below?


  • Firms that pay trading commissions have a higher weight in a sell-side analyst’s II rating as II is a commission-weighted voting process.
  • High trading commission generally means an investment firm buys and sells stocks very frequently, so sell-side analysts who want a ranking should prioritize adding value to the shorter-term funds who trade a lot (generally pod shops and single manager hedge funds trade more frequently than a mutual fund, long only).
  • Buy side portfolio manager and analysts call a sell-side analyst that adds most value to their investing process. Because II rating is commission-weighed, being II ranked directionally is a reflection of likeability by hedge funds rather than by mutual funds.

Companies / Issuers

  • The companies care about the visibility for their stocks. Every company wants research coverage from II-ranked sell-side analysts because these analysts have higher visibility in front of equity investors who can be an incremental buyer of the company’s stock.
  • Stock price going up (because of incremental buyers) is good for company’s investors and the company management. Because of the prospect of better visibility, companies are more inclined to bring investment banking services to that II-ranked investment bank as the issuer will get a better price for a secondary equity issuance.


  • Obviously, being II ranked as a firm is good for branding, given the issuers value the benefit of going with an II ranked investment bank for services. For the boutique research firms without investment banking services who rely on selling report subscription, they don’t care about II as much.
  • So, the research people at firms with investment banking services care about getting votes because their job security and bonus depend on it

That is all you need to know about II. 

Does working for an II-ranked sell-side analyst matter? You will hate this answer – it depends on your goal:

  • Become a sell-side senior analyst: You should work for an II-ranked analyst to learn how to get ranked.
  • Work at a long-term investment firm: It does not matter because you want to work for a sell-side analyst who has deep industry knowledge and can pick long-term winners, but their value-add doesn’t mean getting votes from shorter-term trading clients, who have a bigger say in II voting. 
  • Work at a short-term trading firm: It matters because you learn how to add value in the areas of calling quarters accurately and developing good contacts for channel checks. You will also get access to clients you want to work for because they respect your analyst.
  • Work at a covered company: It could matter if your analyst has strong access to company C-suites and can place you in an unpublicized, high-profile corporate role. She can just make a phone call for you; provided you have built enough goodwill and the relationship is good.

Please comment below your thoughts. I'd love to learn more from people in the industry on this topic. 

If you are interested in learning more about professional equity investing (the "buy-side"), I have two other great articles for you:

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