Equity analysts have been shipping out from sell side firms on Wall Street and establishing their own independent analysis shops – in droves – according to “Research Renegades” in the November 2009 Bloomberg Markets magazine.
The ongoing transformation of the sell side – through the financial crisis, the bear market and assorted tribulations still taking shape in Washington – is a big change that calls for investor relations professionals to flex with the times.
If we are to connect with our companies’ audiences in the investment markets, we must pay close attention to boutiques and independent analysis firms, as well as the old-line brokerage houses that have traditionally provided research coverage.
Bloomberg writer Edward Robinson quantifies the shift:
The number of independent research firms in the U.S. has soared to 2,667 from 1,012 in 2006, according to Integrity Research Associates LLC., a New York-based consulting firm.
The article notes that traditional investment banks (mostly) aren’t going away. Their underwriting and ability to allocate securities offerings undergird relationships with institutional clients. The buy side sends 70% of commission dollars to giant firms, and only 3% to the independents, according to Bloomberg.
“There is a symbiotic relationship between the bulge-bracket bank and the typical institutional investor, and I can’t see that being displaced,” [Jay Bennett, a consultant with Greenwich Associates] says.
Yet many sell side analysts are departing, starting up their own shops or joining small firms. The article focuses on analysts leaving to avoid conflicts of interest at investment banks, but the broader Wall Street meltdown and dearth of offerings in the past couple of years must also be contributing to the exodus. Economics trump philosophical purity in most job moves on Wall Street (or elsewhere).
Point is, we must follow the analysts, learning about their world as they study ours. Our contacts must extend to the independent firms – without giving up on the big guys. And most IROs probably should focus a lion’s share of attention directly on the buy side. (See earlier post on declining sell side coverage.)
What’s your experience with independents? Any ideas to share with IR colleagues?