Boutiques Rising in Research

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In equity research, as everywhere on Wall Street, career prospects rest on your book of business.

With bulge-bracket research departments still shrinking and the largest independent research shops about to lose the temporary revenue stream created by a 2003 legal settlement, regional and boutique brokerage houses are emerging as the most dynamic career choice for many professionals.

Executives at small and mid-size institutions such as MKM Partners, Brean Murray Carret and Collins Stewart LLC often voice an inclination toward "opportunistic" hiring - picking up top research talent cut loose from larger investment banks. But to come aboard and succeed at a regional or boutique firm, you'll need to bring in paying institutional clients from the get-go. The watchword is "entrepreneurial" - or more bluntly, "eat what you kill."

An opportunistic hire is someone who conveys "a very unique value proposition that you can monetize," says one research director. "The person we're looking for is somebody who can convince us that they can drive business."

Research opportunities can also be found within those European bulge brackets that didn't take government bailouts, including Barclays, Credit Suisse and Deutsche Bank.

Traditional Employers In Decline

In contrast, among what's left of Wall Street's bulge bracket, commitment to equity research continues to decline as it has through most of this decade. The biggest U.S. investment banks - the traditional epicenter for research careers - remain quiescent after eliminating thousands of research jobs over the past year. Many large buy-side institutions have frozen hiring too, and dozens of hedge funds have shut their doors.

A handful of independent research firms benefited over the past five years from a $400 million-plus legal settlement funded by the 10 largest sell-side institutions. That settlement expires in July, removing a revenue stream that helped employ equity analysts. Large independent shops such as Standard & Poor's, Morningstar and Argus are currently negotiating with the big Wall Street houses to continue paying for their clients to receive third-party research.

The outcome will be clearer by mid-summer, according to BusinessWeek. The magazine observes that big banks "are in no position to be generous." Some institutions that paid into the 2003 settlement, such as Lehman, Bear Stearns, and Merrill Lynch, no longer even exist as independent entities.

Morningstar equity research chief Catherine Odelbo told BusinessWeek her firm "may adjust ... coverage based on client demand" after its settlement research contracts end.

The following dour outlook comes from Integrity Research Associates, a consulting firm that follows the investment research space. Although published this past February, it remains valid today:

"The market for research analysts is likely to be extremely soft in 2009, as weak equity markets, plunging commissions, falling assets under management, and continuing redemptions make sell-side, buy-side, and alternative research providers lean towards reducing analytical headcount rather than increase their hiring of research analysts."