With the publication of the Institutional Investor All-America Research Team awards (congratulations, JP Morgan!), some of the equity research industry’s most experienced and successful players have been talking to II about what’s changed over the course of their careers, what the secrets of success are and, possibly most important of all, whether there is any appeal at all to one of investment banking’s Cinderella roles, one which always seems to be on the verge of dying out.
Strikingly, all of the Hall Of Fame players interviewed seem to be giving the same message. Equity research, if it’s done right, is a great job and one of the best ways to develop a really comprehensive skill set in valuation, industry analysis, marketing and communication. Analysts still get to work with some of the most interesting people in the world, and start generating their own revenues and franchises at a much earlier stage in their careers than in many other parts of sales & trading or IBD.
Where the problems come in is that it’s always been insanely competitive and difficult to get paid, and this has got worse over time. Back before the dawn of the fax machine, when today’s grandees were starting out (the economist Ed Hyman has now been top of the II rankings in his sector for 38 years!) research reports came out monthly, trading commissions were fixed and the most service many clients needed was some help in getting a “read” on a set of accounts to help make up their mind if they still wanted to own a stock.
Nowadays, it’s more like a report every day (Hyman publishes one every morning and one every afternoon), with everything disseminated simultaneously at the speed of email. The passage of Regulation FD means that the sell side no longer has access to special chats with management, but MiFID II in Europe means that analysts have to demonstrate value added information that people are prepared to pay money out of their own P&L (rather than client assets) for.
How do you deal with a market like this? The consistent answer from the people who have succeeded is “work harder”. Investors are still prepared to pay good money for industry insight and high quality thematic research from people who have put themselves at the centre of information flow in an industry, but in order to get the time to produce it, you need to first conquer the daily tidal wave of high-frequency, low importance data points. And once you’ve done that, you need to get on the road and market it.
But the advantage of all this is that being an analyst almost allows you to build your own franchise on an investment bank’s platform. Who else these days is able to design their product, produce it, market it and get instant feedback on whether their ideas worked or not? The increased pressure is likely to drive out mediocrity, but at the top of the profession, when it all works out, it still seems like a pretty good job.
One person who knows the importance of a franchise more than most is Paul Taubman. He was the highest paid executive on Wall Street in 2015, after having set up a successful boutique two years earlier as the culmination of a 30 year career at Morgan Stanley. This put him in a strong position that year when Blackstone wanted to spin off their advisory and restructuring businesses, which were causing conflicts of interest with their core investment franchise. PJT Partners Inc was born, and swiftly had its initial public offering. In the last three years, the earn-out component of this deal has seen Taubman awarded $127m worth of equity grants, plus a salary of $1m a year. The deal goes on until 2021 and could see even more shares awarded if targets are met.
The lesson here seems to be that going it alone is good, but if you’ve got the franchise to pull it off, going into partnership with one of the biggest financial firms in the world is even better. Since its formation, PJT Partners has landed big deals (including the mandate from Sky for its acquisition by Comcast) and has attracted senior bankers from JP Morgan and Goldman Sachs. Good to know it can still be done.
The former PA to Goldman Sachs CEO David Solomon, who was about to plead guilty to stealing $1.2m of Solomon's rare wine, committed suicide by jumping out his hotel window. (NYPost)
SocGen has taken the opportunity of London Metals Week to unveil a new “robotrader” product; it’s a chatroom robot that can respond to simple commands and place small orders. This looks like a convenience tool for the human trader rather than something that might eventually replace them though – it’s designed to allow the human being to focus on large and difficult orders from valuable clients. (Bloomberg)
Kweku Adoboli has been given bail while he waits for his last-ditch immigration appeals hearing. Before he got the good news, he wrote for the Times, setting out his case and responding to some comments made by Ossie Grübel last week. He also suggests that although he admitted full responsibility previously, the whole UBS ETF team were all in on the trades that caused the losses (The Times)
After having made headlines for its announcement that it was leaving London after Brexit, fintech unicorn WB21 has made headlines for being charged by the SEC for fraud. The allegations are that WB21 never had the payments technology it advertised, and made its money by acting as what Jordan Belfort called a “rathole” – a series of nominee accounts which allowed restricted insiders to dump stock on the market without making the proper disclosures. The company and its founder Michael Gastauer are disputing the charges (FT)
Credit Suisse are the mortgage lender of record on the purchase of a $209m apartment at One Hyde Park in London (including “wine storage” and parking spaces). The buyer is, somewhat unromantically “two anonymous companies registered in Guernsey” (Bloomberg)
Few details yet, but Morgan Stanley has registered identification codes which suggest that it is going to open up a Multilateral Trading Facility (ie, a dark pool to facilitate block trades in equities) in Paris, rather than London.(Financial News)
A fun extended interview with Sugata Ray at the University of Alabama, and his research into the things that hedge fund managers get distracted by (marriage, divorce, buying houses, sports cars) and the effect on their performance (usually negative). He has found that winning a high profile poker tournament will tend to attract significant new money to a manager’s fund, but it isn’t correlated with better performance. Conversely, losing hedge fund managers often make large charitable donations, and suffer less outflows than they otherwise would as a result. (Barron’s)
On that basis, we might see some philanthropic activity from Edouard Carmignac, as his eponymous French asset manager is going through a restructuring after a period of under-performance and some material redemptions. (FT)
Max Niederhofer of Sunstone Capital talks about the things that make VC investing so psychologically painful (Maxniederhofer.com)
For the first time since Obama in 2008, financial sector donors will be giving more money to Democrat candidates than Republicans in the coming midterm elections (Times)
Women In Listed Derivatives, a trade association, held a workshop on sexual harassment in Chicago with some sound advice given (John Lothian News)
And if you’re not planning on emulating Paul Taubman or the Institutional Investor Research Hall of Famers, here’s how to conquer envy and remain happy when people around you are succeeding (Guardian)
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