kevin0118 Wrote: ------------------------------------------------------- > Take share from a shrinking pie called commission > dollars? Feel free to do that. As a buy-sider, i > do appreciate a good initiation of coverage > report, but then the quarterly notes and the > “lunch with management” notes are just spam. so you rather do your own quarterly notes? you still read em, yes, some of it is garbage press release repeat, but a good analyst will only write when the ocassion is value added. @ my spot, the DOR kicks you off the call unless you are saying something our clients will want to hear.
- 1 on what numi said.
I just finished watching the CFAI’s webcast of their industry analysis event that they did on 5th december. At the very very end of the NY section (like the last 2 mins or so), one of the speakers says that this crisis will make the CFA charter much much more valuable (I think they said it in the amsterdam section too). Here’s the link to the event: http://www.cfawebcasts.org/cpe/what.cfm?test_id=857 (CFAI members can watch - I’m not sure if others can get it). Of course, they’re saying this at a CFA sponsored event, but the endorsements seem fairly unforced.
Sid - I’m guessing you were a banker or have no experience in research or equity investing? I love it when people say equity research is a cost center when Analysts, Associates and VPs in banking think they aren’t cost centers. A “cost center” is tough to identify in finance. One could argue on the sellside the only people who aren’t cost centers are the bankers actually bringing in deals (not the layers below them making and checking books/models) and the sales guys who are talking directly to clients. To think sell-side research is dead is showing your lack of understanding of how most buyside shops work. Only the largest funds actually employ enough people to stay on top of a large universe of companies, the sellside is actually pretty important to the buyside, that’s why you see commissions sky rocketing from hedge funds and falling from the Fidelity’s of the world. A good Research Analyst drives commissions and banking business, it’s tough to argue that a no name banker and his junior guys are the people driving banking business when the Research Analyst is out every day talking to companies, buyside and private equity guys as well as being visible (a form of marketing) on CNBC, WSJ, NYT, Barrons, etc. . Research is a cost center as much as any employee at a company is a cost center. It is telling when a strong research analyst leaves a bank and investment banking business in that sector dries up instantly, this happens quite often.
I worked at LEH in ER and now am doing the same thing at Barclays Capital. Regardless of your passionate reply, bsider, I strongly stand by what I said. My experience is based on interaction with people from Fidelity/ Citadel / Lazard, etc. I can tell you, unequivocally, the thinking is mutual with whom I have been speaking with. What you said was true back in the day. The lustre is just not the same anymore. Buy side shops are starting to understand that they can do away with SS research and are relying on cheaper ways to understand what they want to know about companies. The biggest benefit that SS research can offer to buy side right now is access to company management. The day buy side figures out how to eliminate the middleman, I think, it will be the last nail in the coffin. But to suggest, in any way, that the future of SS research is going to be great is to be naive at best.
Interesting debate going here… Sid, can you elaborate on what you said about buyside shops are “relying on cheaper ways to understand what they want to know” I come from a small shop with limited access to the street, so I’m very interested in learning about what some of these alternative resources are.
I suspect sid3699 has it right. Sell side research isn’t going to die, but it is going to transform a lot. The stuff that mostly filling in Excel data is very likely to be outsourced to countries with inexpensive but educated workforces, so India should benefit. I was at a NYSSA holiday reception and I met a guy whose job it is to manage the outsourcing process. He pointed out that, currently, you can get members of his team to compute pretty much any ratio you want, free cash flow, whatnot, quickly, and presumably accurately. He says what’s missing is the analysis beyond that: things like “what’s likely to happen in the next year or two.” What’s the investment strategy. So it sounds like Indian CFA charterholders will eventually be able to capitalize on adding that dimension, maybe. I also wonder how you can do any kind of forward looking analysis if you can’t do reasonable analysis of likely revenue and cost projections. But it’s clear that the human, technological, and business infrastructure is being put into place to do the outsourcing… it will take some time to figure out how to use it effectively, though.
I guess I was defending Research a bit too much, I don’t think it will flourish I just think it often plays a necessary role. I left the sellside for the buyside because I share in the outlook that compensation will probably continue to trend lower (of course at this point it looks like comp across banks will move lower). In terms of having India do work, my firm looked into working with the largest Indian outsourcing firm for research, models, etc. and it turned out that it wasn’t going to end up being that much cheaper, maybe the sellside can generate enough scale to make it work but for buyside shops that rely on the sellside it seems like prices are not yet feasible for Indian outsourcing. Good debate going, I’m definitely negative on research I just think people are overly pessimistic saying it’s worthless and going away. If people think research is bad what about all of the sales guys who simply repeat the research? Plenty of fat to cut all over the street.
bsider Wrote: ------------------------------------------------------- > I guess I was defending Research a bit too much, > I don’t think it will flourish I just think it > often plays a necessary role. I left the sellside > for the buyside because I share in the outlook > that compensation will probably continue to trend > lower (of course at this point it looks like comp > across banks will move lower). That was the same reason I moved to private equity as well. Of course, PE is going through tough times as well, but not as bad as sell-side research as far as I can tell. We have a little more to hang our hats on because the time horizons of our investments are longer. > In terms of having > India do work, my firm looked into working with > the largest Indian outsourcing firm for research, > models, etc. and it turned out that it wasn’t > going to end up being that much cheaper, maybe the > sellside can generate enough scale to make it work > but for buyside shops that rely on the sellside it > seems like prices are not yet feasible for Indian > outsourcing. The sell-side found the same issues as well; while some of the more perfunctory tasks such as data management of existing models and populating stuff from SEC filings are outsourced overseas, it’s hard to expect people that don’t follow the companies every day to understand what types of financial items are pertinent to the ongoing business and what types should be excluded. Plus, the role of the person overseas would really have been to help with assistant or associate level types of tasks, because it is generally essential for the analyst to be domiciled in the country of the exchange where the stocks are in order to meet with management, clients and so forth. That’s the reason why the outsourcing movement hasn’t been more popular than it is. > Good debate going, I’m definitely > negative on research I just think people are > overly pessimistic saying it’s worthless and going > away. If people think research is bad what about > all of the sales guys who simply repeat the > research? Plenty of fat to cut all over the > street. A lot of them are fat (both literally and figuratively), and a lot of them have been cut already. The senior analyst job has progressively become more of a “salesman-like” role over time and I think it’ll continue to shift more towards pitching of ideas, with the associates taking on greater responsibility of the more mechanical elements of the job.
IMHO, CFA designation will hold more weight because of one thing: Ethics. It is the foundation that the organization was built on and is more important than ever.
El Matarife Wrote: ------------------------------------------------------- > IMHO, CFA designation will hold more weight > because of one thing: Ethics. I can’t tell whether this post was a serious one or a joke
Sell side research is quite important at the bulges for example. I know that all the different departments would use all this research for their various divisions. IBD would consult with the SS analysts AM would use the researc to assist in their decision making Private wealth advisors would use it to assist in decision making for clients. Also clients love reading all the research crap and seeing that the advisors have all this reserach behind them, a big vehicle driving them. etc etc
I think Ethics does play a role. I see three values here: 1) The exam prepares you to think about some ethical situations that you might not otherwise encounter before you find yourself mixed up in them. Forewarned is forearmed. You won’t screen out genuinely unethical people, but you can avoid accidentally getting into ethically questionable situations and/or not having some sensible response to t hem. 2) Breach ethics and you can potentially get your charter revoked. That has some value, particularly early on in your career. 3) If you do find yourself in an ethical dilemma, there is at least some standard you can refer to as to how you should act, it’s public what those standards are, and as a charterholder or candidate people know what those actions are (roughly). I don’t know whether I’d call it the most valuable thing about the charter - there are lots of other contenders in that spot - but it is valuable, I think.
maddane Wrote: ------------------------------------------------------- > Sell side research is quite important at the > bulges for example. > > I know that all the different departments would > use all this research for their various > divisions. > > IBD would consult with the SS analysts > > AM would use the researc to assist in their > decision making > > Private wealth advisors would use it to assist in > decision making for clients. Also clients love > reading all the research crap and seeing that the > advisors have all this reserach behind them, a big > vehicle driving them. > > etc etc As I said earlier, research will likely need to derive a portion of its funding from non-IBD sources. Research is widely disseminated and used by various banking departments outside of investment banking–i.e. wealth management, retail brokerage, etc. If push comes to shove, I’d imagine advisers leveraging their bank’s research would help subsidize some of the expenses in order to continue providing the service to their clients.