Buyside proves haven for analysts

Little surprise, then, that an increasing number of investment bank analysts are jumping ship.

The most obvious haven from the storm is the buyside. Petra Rickmeyer at Hoggett Bowers, a headhunter who fills buyside jobs, says analysts' reactions to her overtures have changed dramatically in recent months: 'Most used to say 'No'. Then they would say 'Maybe,' depending upon who was recruiting. Now the response is almost always, 'Yes, tell me more'.'

One problem is that analysts moving to the buyside can find their pay is cut severely, often by up to 50%. As a result, those analysts making the move were traditionally those that had already made their fortune, and were looking for a quieter life before retiring. These days, Rickmeyer says junior analysts are just as keen to move. The buyside is seen as offering a more viable career.

Merrill Lynch agreed last week to pay a fine of $100m (€108m) after Eliot Spitzer, the New York State Attorney General, said the independence of its research was compromised by its investment banking interests. Disgruntled investors are now seeking compensation and the pressure on sellside analysts is set to grow.

There is no shortage of organisations waiting to employ them. The 2002 Reuters Institutional Investor Survey found that more than 42% of pan-European fund managers plan to increase their in-house research capability. Baring Asset Management, Morley Fund Management and Royal SunAlliance Unit Trust Management are among those said to be hiring in Europe.

Many sellside analysts who have already made the move are keen to encourage others to follow in their footsteps. Bruce Davidson, head of equity research at Axa and a former senior researcher at SG Securities, Schroders and Merrill Lynch, says: 'The quality of life is better on the buyside. People are tired of working for bulge-bracket firms where they travel all the time and employers sometimes behave as if they own them.'

A better lifestyle is not the only point in the buyside's favour. While accusations fly over the quality of research in investment banks, buyside analysts are able to look on with a clear conscience. Sellside analysts may be torn between investors and corporate finance clients. But on the buyside, all that matters is that returns are maximised this can bring a certain charm to the job.

'It's a simpler and more focused life. Without the conflicts of interest, the environment is more thoughtful,' says Davidson. Philip Gibbs, a star fund manager at Jupiter and former analyst at Barclays de Zoete Wedd, is equally taken with the buyside's lack of ambiguity. 'Analysts at investment banks are under a lot of pressure to be diplomatic. On the fund management side, you just buy what you think will go up and sell what you think will go down.'

An equally popular option for disaffected sellside analysts is moving to a hedge fund. Monima Siddique, managing director at City Analytics, a financial research headhunter, says hedge funds appeal because they offer instant gratification - analysts work closely with fund managers and can easily trace the outcome of their recommendations. If successful they are likely to be quickly remunerated. However, there are risks: analysts at small hedge funds have to shoulder a lot of responsibility for duds.

Life on the buyside does not appeal to everyone. Emmanuelle Arthur-Michelle, a consultant at headhunters Russell Reynolds, says sellside analysts who are used to appearing in public, touring with IPO roadshows and seeing their name in newspapers, can find life on the buyside a bit too pedestrian.

'At a lot of UK fund management firms, analysts do not operate at the core of the business. They are sidelined by fund managers who are used to doing research themselves and this does not go down very well,' she says.

Equally, some employers will sometimes turn their nose up at individuals with a sellside past. For Securities, a specialist research house, does not employ any former sellside analysts. Karin Barnick, a consultant at headhunters Whitehead Mann in London, says sellside analysts are media-savvy and able to perform in front of clients, but can be unfamiliar with the kind of intricate research required by buyside employers.

The future shape of sellside analysis is uncertain. Some people, including Siddique, say events in the US may yet create jobs on the sellside. If equity analysts are unable to talk about IPOs and corporate finance analysts are never allowed on to the trading floor, more analysts could be required. Others, including Bruce Wasserstein, the chief executive of Lazard, have said that sellside analysis is disappearing.

Whatever the outcome, analysts are likely to be paid less, or at least differently, in the future. Bonuses may be separated completely from M&A deals. Henry Kaufman, a former managing director of research at Salomon Brothers, says the role of analysts is likely to be more subdued in the future and pay is likely to be lower. If there are any more Enrons, Kaufman says legislation to prevent banks undertaking equity research is increasingly likely.

Glenn Buggy, an asset management specialist at Whitehead Mann in New York, says: 'Sellside analysts have been humbled. They're up there [in public esteem] with lawyers and real estate agents these days.

'But people aren't trying to move away from the sellside because it's a tainted profession. It's more to do with the fact that they can't make any money. If you're getting grief for being a sellside analyst and you're not getting paid as much as you were, then why do it?'