I hope you can join us on Sep. 22 evening for a presentation on "Where are the Deals?  Private Equity and Venture Capital Funds' Best Practices in Deal Origination ".  We'll be discussing preliminary findings from a white paper we're writing on this topic.  I'd like to thank our hosts, the Columbia Business School Alumni Club of New York .

Here's the ad:

The quality of the deals you source is one of the greatest drivers of your success as an investor. What are you doing to improve your deal flow?

David Teten will discuss:

• How are you positioning yourself to become your target's preferred investor?

• What does research on deal-origination indicate are the primary sources of deal flow for institutional investors?

• What are you doing to identify companies that might be interested in being approached?

• What are the earmarks of a potential investment opportunity?

• How are you systematically identifying industries/situations in which you may be able to create new companies, rather than find existing companies?

• How can you use Web 2.0 tools to identify appropriate investments?

• How do you increase your inflow of useful referrals?

• What is the best way to make warm cold calls?

David Teten is a Managing Director of Evalueserve, the world's largest knowledge process outsourcing company.  Founded in 2000, the company has over 2,400 employees.  Among its 1,100 clients are 6 of the top 10 investment banks and 10 of the top 15 strategy consulting firms.  David joined Evalueserve when the firm acquired his company, the Circle of Experts.  He leads Evalueserve's services in helping institutional investors originate investments.  David was formerly CEO of Teten Executive Recruiting, which he sold to Accolo, #42 on the 2007 Inc. 500 list.  Previously, he was CEO of GoldNames, an investment bank serving the internet domain name asset class.  He worked with Bear Stearns' Investment Banking division as a member of their technology/defense M&A team, and was a strategy consultant with Mars & Co.  David is lead author of The Virtual Handshake: Opening Doors and Closing Deals Online, the first book on how businesses can use online networks and other "Web 2.0" technologies to originate deals, raise capital, win new clients, recruit star employees, and market their firm.  He holds a Harvard MBA and a Yale BA, both with honors.   David is a member of the Advisory Board for Accolo, Grouply, and the Word of Mouth Marketing Association.   He is a frequent keynote speaker to finance and technology conferences

DATE
Monday, September 22nd

AGENDA
6:00 - 6:30 PM Registration
6:30 - 8:00 PM Program & Reception

PLACE
Cresa Partners

100 Park Avenue, [between 40th and 41st Street] 24th floor

PRICE
CBSAC/NY Members $25
Non-members $35
Pre-registration recommended. $10 surcharge added to day-of-event registrations
To become a member click here

REGISTRATION
To purchase tickets click here: Click here to buy tickets!!!
Space is limited and will fill up quickly.

NOTES
Reception includes bottled water, soft drinks and hot & cold hors d’oeuvres

EVENT ORGANIZERS
We are grateful to Gene Kenny and Frank Graziano (CBS '82) of the Private Equity Committee for organizing this event

Events | Leadership and Management | Private Equity Investing | Social Software

 

I enjoyed listening to a panel this morning sponsored by Broadgate Consultants on "Raising Fund “x”: Trends in Private Equity Fundraising and Fund Evaluation."  My rough notes follow:

 

Panelists were:

• Dr. Oliver Gottschalg, Assistant Professor of Strategy and Business Policy, HEC School of Management; Co-director, HEC-INSEAD Buyout Research Group
• C. Scott Hamner, Director, Credit Suisse Customized Fund Investment Group
• Jesse E. Reyes, Managing Director, Bear Stearns Private Funds Group; Founder, Reyes Analytics

 

Reyes: Buyout market bifurcated between very large firms and very small.  Everyone now wants to go mid-market (defined as under $1b to under $6b). 

Distributions have been coming back to LPs very slowly, so they have less capital to invest.

 

Hamner We represent pensions and other large investors.  We act as an investor/fiduciary on behalf of those clients, and are an intermediary here. 

 

Quality and volume of funds is much greater now than it was in the past. 

We're seeing a convergence of our investor criteria. 

We have a much larger universe of funds in which we can invest. 

Bar for new manager relationships is higher than managers we've known in the past.

 

Gottschalg: "Top quartile paradox". 

A lot of LPs unhappy with past performance of their investments.

 

Q: Subjective or objective criteria more important?

 

Reyes:  "People eat multiples not IRR."

 

Gottschalg: Multiples and IRRs are both misleading.  A better measure is to move to a better standard on which performance can be objectively reported. 

 

Q: What is your advice to new managers?

 

Reyes: I see a lot of shotgun marketing in the LP business.  You should only be focusing on funds that are a fit for what you invest in/your stage. 

 

The attribution of your track record is important, i.e., who in your fund did what. 

 

The devil you know is better than the devil you don't.

 

Differentiation/knowing your customer is paramount.

 

Q: What is the effect of the growth of the secondaries investing market?

 

Gottschalg: This industry will move to more objective reliable performance measures, a ratings-type model. 

 

A more liquid secondary market opens up a whole new toolbox for how you invest in this sector, and changes how you think about investing in this area.

 

Gottschalg: What are obstacles in the way of this industry realizing the division that you outlined? 

 

Inefficiencies in the market help top PE firms get great returns.

 

Reyes: Is being top quartile in Fund 1 correlated with being top quartile in Fund 2? 

 

Q: How does GPs marking to market impact how you do business?

 

Reyes: 95% correlation between VC returns and Nasdaq; 60% correlation between buyout returns and S&P 500

 

Question from fund that brags about its capital efficiency, and asked for details on metrics that the panel recommends for evaluating fund performance.

 

Reyes: Capital efficiency is not a gating item, it's a differentiator.

 

Teten: What metrics are fairest for judging private equity vs. hedge funds and other investments?

 

Reyes: Some relevant research on this topic by Austin Long, of U. Texas, and Jeremy Collard.

People tend to use just multiples, not IRRs.  "It's hard to compare an IRR with an index."

 

3 elements to consider in designing a performance measure:

- overall multiple

- duration

- risk level you are taking

 

(Teten: I'd also add you should measure how much capital you use immediately vs. later.)

 

Hamner: Two main comparables:

-         a public index (S&P 500, Russell 2000)

-         Cambridge Associates US Venture Capital Index/Thomson Venture Economics index

 

Q: How do you measure performance when PEs take a long time to put capital to work?

 

Reyes: "Just in time" financing is the solution for this, that is a tool to boost IRR to the highest possible level. 

 

 

Events | Private Equity Investing

I’ll be visiting the San Francisco Bay Area May 5-8, and hope that you can attend some of my investor seminars to the Wharton and Columbia Business School Alumni Clubs:

Topic: “Squeezing Blood from a Stone: The Professional Investor’s Guide to Eliciting Information”

Host: Wharton Club of Northern California
Learn how professional investors elicit maximum information in minimum time from industry sources. How do you ask just the right questions to get a CFO to open up and tell you about his company? This training is based on best practices in the intelligence, psychiatric, law enforcement, and journalist communities.
When: Wednesday, May 7th, 6pm cocktails, 7pm program
Location: Perkins Coie, 101 Jefferson Drive, Menlo Park, CA 94025
RSVP and more details: http://www.whartonclub.com/article.html?aid=901

Topic: “Where are the Deals? Venture Capitalists, Hedge Funds, and Private Equity Firms’ Best Practices in Deal Creation and Deal Origination”

Host: Columbia Business School Alumni Club of Northern California
What are you doing to identify companies in which you can successfully invest? Learn about recent research on where institutional investors source their investments; how to identify companies with the earmarks of an attractive opportunity; and how to increase your inflow of worthwhile referrals from both intermediaries and investable companies.
When: Thursday, May 8th, 6pm cocktails, 7pm program
Where: Pagemill Partners Auditorium, 2475 Hanover Street, Palo Alto, CA 94304
RSVP and more details: http://www.acteva.com/booking.cfm?bevaid=158041

Also, I will be attending the Association for Corporate Growth Grow! Awards on Tuesday, May 6, at the Computer History Museum in Mountain View ( https://chapters.acg.org/sv/uploads/events/922FC1DF84A74255B0B429DC3FC81104.pdf ), which may interest many of you.

Events | Private Equity Investing | Public Markets Investing

I enjoyed presenting a few weeks ago to the Harvard Business School Club of London on "Best Practices in Deal-Sourcing by Private Equity, Venture Capital, and Hedge Funds", generously hosted by McKinsey.  You can download my slides here.  I look forward to learning more about this area at next week's Capital Roundtable Masterclass on "The Art of Building the Right Deal Flow", in New York.  I would welcome your feedback.

Career Acceleration | Events | Private Equity Investing | Social Software

Matt Nelson of Tower Group was kind enough to give me permission to post his thoughtful slides on "Web 2.0/Enterprise 2.0 in the Financial Services Industry", from the recent New York Financial Markets World conference on "Web 2.0 and Enterprise 2.0 in Capital Markets."  Christopher Rollyson and he briefly discussed his presentation here .

Private Equity Investing | Public Markets Investing | Securities Research | Social Software

Christopher Rollyson took some very detailed notes on the recent New York conference on "Web 2.0 and Enterprise 2.0 in Capital Markets." They're worth reviewing.

NextNY | Private Equity Investing | Public Markets Investing | Securities Research

I have attached below some notes from last Monday's Financial Markets World conference on Web 2.0 / Enterprise 2.0 in the Capital Markets Industry , at Bayard's, New York.  

My own talk was on "How to Source Deals with Web 2.0 Technologies". It was focused on how private equity funds, venture capital funds, and hedge funds can more efficiently find companies in which they can invest. Slides are here. 

Lauren Buckalew from our Shanghai office took notes, below:

------------------------------

A pilot study on awareness and use of Web 2.0 by Canright Communications and Evalueserve found that of the executives surveyed, 44% were “extremely” interested in Web 2.0 for business, but only 17% felt “extremely” or “very” knowledgeable about the technology.

The survey results—which were distributed at the Financial Markets World Web 2.0 / Enterprise 2.0 in the Capital Markets Industry event today—mirrored the speakers’ sentiments: the business community in general imagines grand possibilities for Web 2.0 technologies in the workplace, but the barriers to adoption, such as lack of understanding at the executive level or compliance issues, are still great.

I came to the event excited to be educated. I knew a little about Web 2.0, but I was overwhelmed by the possibilities I saw in the news and just wanted authoritative instruction on how to filter through all of the noise.

The most informative sessions to get the overview were Matt Nelson of TowerGroup’s opening remarks, and the last talk I attended, Dion Hinchcliffe’s ‘Applying Enterprise 2.0 and Web 2.0 in Financial Services: Early Notes from the Field’. In fact, Dion’s absorbing speech would have been better placed early in the day, as it provided a good background, real-life examples of Enterprise 2.0 successes, and a straightforward summary of its shortcomings.

Other speeches and roundtables drilled down on specific topics, like Instant Messaging, Collaboration, Web 3.0, and David Teten’s talk on using Web 2.0 to source deals (I did not hear the last talk by Tom Steinthal of BSG Alliance). Since I was learning about these areas for the first time I was only able to understand on a superficial level, but was most impressed by Penny Herscher of FirstRain and her simple yet sharp insights.

Stephen Leung, a Senior Manager at BEA Systems, who was a panelist on both the ‘Web 2.0/Enterprise 2.0 in the Financial Services Industry’ and ‘Rich Internet Applications and the Client Portal: Using Web 2.0 to Improve the Client Experience’ panels, spoke on the infrastructure and applications side of Web 2.0, and probably received the most questions from the audience.

Although the roundtable topics had various titles, and nearly all of the discussions went overtime out of lively discussion, I didn’t come out of the event in control of Web 2.0 like I thought I would; I just learned how much more there was to it, especially more creative uses of Web 2.0 apps for businesses than I could have imagined.

In following the “Top 10” theme used by Xignite Chariman/CEO/Founder Stephane Dubois to kick-off the first roundtable, here’s my Top 10 Learnings from the event:

10) Web 2.0 technologies should fit into existing workflow and should be invisible to users.

9) The finance world’s secrecy and competitiveness inherently conflicts with Web 2.0’s nature of viral, self-correcting information sharing.

8) Longtail, mashups, fine-grained entitlement, folksonomies, meta data, geo-tagging and MetaWiki are good things… once you understand them.

7) Individuals can use Web 2.0 tools to leverage existing social networks to generate sales or make deals. One can do this outside of any business structures, based on one’s own diversity of contacts, character, competence, the relevance and strength of one’s contacts, and access to information.

6) Executive decision makers’ lack of information on and understanding of Web 2.0—“What’s the ROI?/I don’t have time for this!/Kids these days and their crazy technology…”—prevent companies from realizing adoption. Any new technology would face similar barriers.

5) Web 2.0 is not a technology or a step in development, but a social concept.

4) Legal/compliance teams haven’t yet figured out how to effectively regulate Web 2.0 tools without reducing them to meaninglessness. But giving employees unbridled Web 2.0 tools is also not recommended.

3) Internal company wikis—which act as a unified log for all project developments and conversations—are a successful example of Enterprise 2.0 in the real world. Key to success is to motivate employees to use it and control the structure themselves.

2) Each element of SLATES (Search, Links, Authoring, Tagging, Extension, and Signals) is required for a Web 2.0 tool to be effective.

1) There is no clear solution for how the capital markets industry should integrate Web 2.0 into business. The interest is there, but Web 2.0 is still effectively consumer-driven, not enterprise driven.

More discussion on Enterprise 2.0 is in order, but before then, more actual application of Enterprise 2.0 in the workplace would be more informative.

NextNY | Private Equity Investing | Public Markets Investing | Securities Research | Social Software

I'm looking forward to speaking at an upcoming conference, Web 2.0 / Enterprise 2.0 in the Capital Markets Industry, on September 17 in New York.

Liz Abraham of Financial Markets World reports that they still have slots for a few speakers with experience in using or implementing Web 2.0 in the capital markets industry. If you're interested and qualified, contact liz.abraham(at)FMWOnline.com .

My topic is How to Source Deals Using Web 2.0 Technologies, focused on how investment bankers, hedge funds, and private equity funds source investments.  I also will be on a panel on Web 3.0.  Preliminary outlines of my presentations are at the preceding links.  If any readers have suggestions on this general topic, I would welcome them.

Leadership and Management | Private Equity Investing | Public Markets Investing | Securities Research

I am prone to agree with Robert Frank's argument in "A Career in Hedge Funds and the Price of Overcrowding". 

"[The market for hedge fund talent] is what economists call a winner-take-all market — essentially a tournament in which a handful of winners are selected from a much larger field of initial contestants. Such markets tend to attract too many contestants for two reasons.

The first is an information bias. An intelligent decision about whether to enter any tournament requires an accurate estimate of the odds of winning. Yet people’s assessments of their relative skill levels are notoriously optimistic. Surveys show, for example, that more than 90 percent of workers consider themselves more productive than their average colleague.

This overconfidence bias is especially likely to distort career choice because, in addition to the motivational forces that support it, the biggest winners in many tournaments are so conspicuous. For example, N.B.A. stars who earn eight-figure salaries appear on television several nights a week, whereas the thousands who failed to make the league attract little notice....

A second reason for persistent overcrowding in winner-take-all markets is a structural problem called “the tragedy of the commons.” This problem helps explain, for instance, why we see too many gold prospectors, an occupation that has much in common with prospecting for corporate deals. In the initial stages of exploiting a newly discovered gold field, adding another prospector may significantly increase the total amount of gold found. Beyond some point, however, additional prospectors contribute little. The gold found by a newcomer to a crowded field is largely gold that would have been found by existing searchers."

more...

Career Acceleration | Leadership and Management | Private Equity Investing | Public Markets Investing

I hope that some of you can join me at the conference below---I'll be on the panel discussing user-generated content. Web 2.0 NY  - June 14, 2007

Combined with Local Ad World & Madison Ave. 2.0

Collaborative & Social Tools applied to Business & Media Web 2.0 Business Models with far-reaching influence Disruptive new technology and business applications How AdSense is fueling the Land Grab on Madison Ave. Why NY Digital matters as post-Industrial economy puts Advertising ahead of manufacturing How to raise Capital and grow your Web 2.0 enterprise Must attend for: Media, Advertisers, Agencies, Entrepreneurs, Digital Marketers, Tech Co's, Investors and Educators. Esther Dyson to Keynote Web 2.0 NY Summit Industry pioneer, visionary and backer of Flickr and Meetup speaks at Web 2.0 NY Summit. Shawn Gold, SVP MySpace                                         Other Speakers and companies like Michael Dubin (Yahoo), Jack Myers (Myers Report), Shelly Palmer (TV Disrupted), Kara Nortman (Interactive Corp.), Shaival Shah (Oddcast), Seth Haberman (Visible World), Doug Perlson (TargetSpot), Jenny Mullen (OgilvyOne), Andrew Weinreich (MeetMoi), Connie Connors (HitTail), Wayne Reuvers (LiveTechnology), Andrew Bloom (Spot Runner), Chris O'Brien (MotionBox), Allan Grafman (AllMedia Ventures), David Teten (Circle of Experts) Gregory Galant (RadioTail), Steve Rosenbaum (Magnify), Bob Rustad (Collarity, Dylan Charles (Crimson), Dusty Wright (Culture Catch), David Marder (Eurekster), David Rose (NY Angels)........... Come to the Web 2.0 NY Summit to learn how this is changing content, marketing and customer interaction. Learn how to develop your company, sell your products, acquire new customers and raise capital at our afternoon pitching event.   Evening Cocktail Party sponsored by Live Technology Registration: http://web2ny.com/

Events | Private Equity Investing | Public Markets Investing | Social Software

I'm happy to report that Evalueserve has acquired Nitron Advisors. I originally met with some of the senior management at EVS because I was recruiting them to consult for some clients. That conversation led to another conversation, and another, which led to an offer, which led to an acquisition.

I plan to continue running Nitron Circle of Experts with my partner Scott Lichtman, now with a much larger platform in the emerging markets. Evalueserve has been a rocket ship of a company, and a perfect fit for our long-term strategy for Nitron.

Both our clients and our experts will benefit from this relationship. Clients will get access to the largest knowledge process outsourcing company, with 1,800 people in India, China, and Chile. Experts will see increased consultation volume from a wide range of clients.

We have already launched an Indian expert network, which should be of particular interest to any readers who are investing or doing business in India. We have also launched a Media Source Center, a service to provide a very small number of elite journalists with free access to high quality media sources, for stories related to the emerging markets. If you know any journalists covering the emerging markets, they are welcome to contact us to apply for this service.

More details here: http://www.circleofexperts.com/nitron-evs-merger.aspx .

You can read more about Evalueserve at http://evalueserve.com/ .

UPDATE: For Integrity Research's comments on the acquisition, see http://integrityresearch.blogdrive.com/archive/826.html . 

Private Equity Investing | Public Markets Investing

Dealmaker Magazine has a useful survey of 2006 compensation at top private equity firms and investment banks.

They've done their best to make it hard to replicate this data without sharing your own personal data with them.

The page with this data in the printed magazine is written with hard-to-copy formatting, and the online version is presented in graphical form so readers can't just cut and paste it.

Click here and register for the data: http://www.dealmakerdaily.com/magazine/article/4444.html

UPDATE: For another excellent compensation survey, see TheFundBusiness Survey .

Career Acceleration | General | Private Equity Investing | Public Markets Investing

Via Laura Athavale Fitton: "Just in time for Spring Pitching season and all the venture fairs coming up, we've published a pair of tip sheets for startups to make their pitches stronger:" http://home.comcast.net/~pistachioconsulting/10ThingsPitch.htm http://home.comcast.net/~pistachioconsulting/Break10Rules.htm

General | Private Equity Investing | Public Markets Investing

The team from AQ Research (at whose conference I'll be speaking tomorrow in London) has written a blog post about an idea I've chewed on for a while: ‘A Marketplace for Research’.

There are a number of gross inefficiencies in the current research business, and inefficiencies are usually the breeding ground where new business models can be created.  Among those inefficiencies:

• Many people on Wall Street are paid large amounts of money to do identical work, e.g., probably hundreds of investors have slightly different models of what Microsoft's earnings will be

• Money managers pay a lot for a product, research, whose exact value they don't know.   

• Research analysts, who are supposed to be experts in valuation, don't know exactly how to price their own product.

 

The idea of a marketplace for research addresses many of these inefficiencies. As one small example of a research market, I know of a boutique research firm which explicitly auctions off certain new analyses to, e.g., the top four bidders among their clients.

Another model: there are quite a few startups which provide a marketplace for retail investors to share their research, although of course in the vast majority of cases this research is far inferior to what is sold to institutional investors.  These sites are hoping to benefit from the wisdom of crowds effect, as does the Circle of Experts.

• SeekingAlpha.com, which channels contents from hundreds of bloggers to provide insight on a range of industries. They pay the bloggers nothing, but monetize the traffic through advertising. Bloggers participate for exposure.

• Marketocracy , a research company and fund which has recruited over 55,000 people to manage over 65,000 model portfolios. It then invests based on the best picks of those participants.

• Feeling Bullish, BullPoo, Digstock, and SocialPicks - all of which are discussion sites in which your public discussion of investment ideas is systematically ranked. The SocialPicks site is currently down.

• Stocktickr positions itself as a "trading journal" in which you can keep track of your trading ideas. Asking people to submit this information manually won't work—they need to have partnerships with all the major online trading services. (Update: compare with Mint, which has executed this idea well.)

• Bivio, a site which helps individual investors form investment clubs. They provide accounting and fund management services, including investment partnership accounting and tax software.

• Motley Fool CAPS, a Motley Fool service that lets users place predictions on a publicly listed stock’s performance vs. the S&P 500 over a given time frame ( See Techcrunch's writeup)

General | Private Equity Investing | Public Markets Investing | Securities Research

Nitron Advisors is featured on the front page of today's Wall Street Journal:

Big Investors Turn to Network of Informants "For professional investors, something akin to what Match.com has done for the nation's singles...hooking up middle managers from hundreds of companies with professional investors desperate for an investing edge." More (requires subscription or two-week trial)

UPDATE: Michael Mayhew posted the article's text in full, without the graphic which discusses revenue of Nitron and other players in the space.

General | Private Equity Investing | Public Markets Investing | Securities Research

My colleague Scott Lichtman took notes on Ian Bremmer's talk Monday night at this past week’s World Hedge Funds Summit . Dr. Bremmer's prediction that Rumsfeld would resign proved accurate within 48 hours.

Ian Bremmer, President of Eurasia Group, and author of The J-Curve: A New Way to Understand Why Nations Rise and Fall, spoke about understanding the stability of political regimes and how investors can pick the right countries/regions, sectors, and investment strategies to make the most of this analysis.



Opening question: Why is Iran a much greater risk to the world economy than North Korea? What does China take from the US during business negotiations that Russia doesn’t?



These questions are addressed through his theory of the "J-Curve". Imagine a graph with Societal Openness on the Y axis and National Stability on the x axis.

The graph line starts high on the left as very closed nations are very stable, plunges downward moving right as nations that attempt small become much less stable quickly, then gradually rises towards greater stability as open policies such as rule of law, freedom of press and democratic voting proceed.

 Think of the Nike swoosh with the tail opening on the right – or a check mark with a rounded bottom.



Iraq, on the upper left, was stable under Hussein’s closed (oppressive) regime policies, in terms of impact on the economic markets. The direction of shifts in the J-curve has implications for the size, type and duration of investments in a given country.

 Some of this is common sense, but Bremmer’s knowledge of the political environment, layered on the J-curve analysis, makes for very worthwhile food for thought.

See more below on China (and role in Africa), India, North Korea/Japan, Russia and oil, and the US elections.

North Korea: The j-curve tells us that regimes like this naturally rebound to maximum ‘closed’ status. Open democracy is far too risky for the regime to ever consider, so trying to isolate the country through sanctions actually is a reward for Kim Jong-Il. They’re calculating their position – alerting the world ahead of a nuclear test, so that the US and China could coordinate positions, with China’s interest in maintaining status quo to gradually ascend as regional superpower, damping any real sanctions.

The worst case for Korea is if Japan and China agree and N. Korea can’t play them off each other. Japan may become the ‘Israel of Asia’ – close US ties, longstanding differences with its neighbors, nuclear capable . If Japanese and Chinese economies slow and their governments want to bolster popular support through rhetoric, watch out for potential sea-based military conflict. But it’s most likely that those economics grow and N. Korea is relatively harmless - all the government really wants is money and self-preservation. (and cigars and brandy)

China: In China, the pro-growth politicans are out. That’s not a problem, because for 5 years there has been gridlock on any issue like IP protection or foreign investment in assets. With a more conservative government in place, they can actually afford to make a few accommodations in these areas that will keep relations stable with the US.

Bremmer predicts a worsening situation in ’08, at the time of the Olympics in Beijing. "Scheduling it in 08 was a mistake." That’s in the middle of a US election, when congressman will use the high profile event to put pressure on trade and human rights issues. While the Chinese will do their best to focus on a smooth Olympic event with an agenda on Tibet, free press, the Shanghai faction will attempt to make noise or worse. There’s a 20-40% probability of a modest shock occurrence during the event. Compare the Atlanta Olympics.

China is taking maximalist investment positions in unstable countries. Chinese is being taught as second language in African schools. 2 months ago in Zambia elections, a candidate promised he would recognize Taiwan as a nation. That even being an issue shows a lot of anger about China investing in copper, being close to dictatorial local governments, smashing trade unions, etc. China is starting to control commodities sources.

One offsetting factor for the decline in US influence is Bill Gates and the Gates Foundation, which has more influence in certain failed countries than the US and many European nations. "Bufffett's donation to the Gates Foundation was some of the best foreign policy news I've heard."

India: A great environment for the top 2% of the population, which makes a case for investing in luxury products. But will they gain a solid middle class? Bremmer thinks most pundits are too optimistic and we’ll see slower than expected growth in metrics like purchase of cars.

Russia: Relations with the US are in their worse state since Kosovo. The government is going after the metals, telecom, auto, aviation industries – anything they perceive as strategic. If you are working or investing in a strategic sector and not aligned with Putin, you are in trouble.

Russia has a rising middle class, even in Siberia. If you’re part of this market – consumer brands, high-end services, corporate office building – then you’re making money.

Russia feels humiliated about zero sum game with West in last 10 years. Under Clinton, we created an oil pipeline from the Caspian Sea to Europe bypassing Russia. Russia lost control over Georgia and the Ukraine, now they’ve gotten the Ukraine back and are trying to get Georgia back. If that happens, the trans-border oil pipeline contract will be renegotiated.

The good part about investing in Russia is they just want to rip you off monetarily. In contrast, in China they want to take your intellectual property, then compete with you.

Russia sees Iran as a useful geopolitical hedge against US in the region. China sees it as a problem to be contained.

Eastern Europe: looks good/stable. Romania/Bulgaria are relatively closed and hard to invest in, but their P/Es are cheap compared to other Eastern European countries.

Iran – He predicted some sanctions will pass unanimously. The markets won’t react immediately. Somewhere in 2007 it will get ugly. Iran has open press, young activists, which puts it on the volatile part of the j-curve. It benefits them to focus their population on the nuclear confrontation with West. Sanctions help them. But military action by Israel wouldn’t help him (stability-wise).

We have 18 months until the point of no return, when Iran can make nuclear weapons on their own, then 3 years until weapons are readily transportable, according to intelligence in US & Israel. Similar in Britain.

If moderates gain ground, then maybe political actions from the West will make a difference. But oil prices are too strong, which makes the closed society more stable. Israel will likely choose to attack Iran if it comes down to a close-range nuclear threat.

US elections: Bremmer predicted the elections’ impact, noting "Elections are tomorrow, so I get the chance to be wrong immediately."

He predicted Rumsfeld and/or Cheney stepping down, Cheney ostensibly for health reasons.

 This would allow the GOP to insert a fresh VP that could gain national prominence and become a momentum leader for the presidential race in ’08, saving the GOP from a wide-open (unstable) race.

McCain is a front runner but is having good and bad days now (even for a President, he’s relatively old at 72).

 It’s very likely that neo-isolationism will pick up on many fronts – you’ll see it in trade protectionism, reactions to offshoring job losses, and immigration restrictions.

General | Private Equity Investing | Public Markets Investing | Securities Research

I'm happy to report that Nitron Advisors has joined The National Research Exchange, Inc. Here's the press release:
Leading network of frontline industry experts broadens The NRE’s platform


NEW YORK, NY, November 7, 2006 /PRNewswire/ -- Nitron Advisors, Inc., a leading provider of direct access to industry experts and leaders, has joined The National Research Exchange, Inc. (The NRE). Nitron Advisors will allow The NRE to enhance its product suite and service delivery in areas that drive value to research firms, investment banks, public companies, and investors.

"Nitron Advisors is a perfect complement to The NRE menu of research related offerings. The Circle of Experts brings relevant experts for investors' needs, ranging from macro analyses to specific technical expertise to due diligence in support of capital investment. We are very pleased to add these capabilities to our platform," said David Weild IV, President and CEO of The NRE.

"The NRE’s Intermediated Research(SM) program allows companies to increase institutional investors’ interest in and knowledge of their firms Further, The NRE’s analytical system, StreetView(SM), provides users with the ability to assess research provider strategy and investment banking fit," said David Teten, CEO of Nitron, “We are delighted to join The National Research Exchange."

Briefly, The NRE and Nitron Advisors will provide the following service:
==> A Company seeking to increase institutional investor awareness hires The NRE to provide Intermediated Research(SM) coverage.
==> The NRE in turn pays Nitron to introduce some of Nitron's institutional investor clients to members of the Nitron Advisors Circle of Experts who have insight into the Company. In addition, some of Nitron's clients will pay Nitron directly for this service.
==> Nitron pays members of the Nitron Advisors Circle of Experts for their time and insights.

About The NRE

The National Research Exchange is the leader and originator of Intermediated Research(SM). Our proprietary platforms enable equity Issuers and investment banks to systematically evaluate the competitive landscape of banking and research providers in order to mitigate the risks inherent in public offerings and ensure sufficient aftermarket research coverage. Our patent-pending technologies help companies to secure greater visibility and liquidity in the public markets, thereby lowering the cost of capital and improving shareholder value. Visit www.ResearchExchange.com for more information.

About Nitron Advisors

Nitron Advisors, Inc. is an independent research firm, specializing in providing institutional investors and law firms with real-time, frontline information through our proprietary Circle of Experts. Our clients learn from our experts through one-on-one consultations, customized surveys, and interactive events. Our clients include investment banks, hedge funds, mutual funds, private equity firms, and law firms. Visit www.NitronAdvisors.com for more information.

Nitron Advisors Contact:
Scott Lichtman, 1-212-682-6679, slichtman(at)nitronadvisors.com

The NRE Contact:
Richard West, 1-212-595-4600, richard.west(at)researchexchange.com

SOURCE: The National Research Exchange, Inc./Nitron Advisors, LLC

General | Private Equity Investing | Public Markets Investing

I'm enjoying visiting Toronto this week at the http://www.worldhedgefundssummit.com/ . Here are my notes on today's Investment Research Panel, preceded by the speaker biographies.

Moderator: David Weild IV

The National Research Exchange (The NRE) is the originator of Intermediated Research^SM, which helps public companies to secure greater visibility and liquidity in the public markets and research providers to establish new sources of sustainable revenue. Their proprietary analytical tools enable users to evaluate the competitive strengths of research providers and the equity capital markets performance of investment banks.

David Weild IV served as vice chairman of The NASDAQ Stock Market and spent fourteen years at Prudential Securities, where he served as president of PrudentialSecurities.com, head of corporate finance, head of technology investment banking, and head of equity capital markets. He also chaired Prudential’s Equity New Issues Commitment Committee.

Doug Atkin

Majestic helps investors gain an independent perspective of companies and their sectors based on our exclusive relationships with proprietary data sources. We are experts in identifying and securing industry data licenses and turning that information into meaningful research. Doug Atkin was previously President and CEO of Instinet Group, where he conducted the IPO (NASDAQ: INGP), developed Instinet’s research, international trading and correspondent clearing businesses, and led a consortium of nine global brokerage firms that took a majority stake in the virt-x stoc exchange. He served on both the Trading Committee and Market Structure Committee of the SIA. Doug was selected one of the Top New Yorkers of 1999 by New York magazine for his leading role in redefining the financial marketplace. In 2000, Institutional Investor profiled Doug as one of the top 10 individuals making the greatest impact on e-finance, and was presented with The Travers Bell Memorial Award of Distinction sponsored by the SIA. Doug serves as a member of the Board of Directors of Starmine and WR Hambrecht. He is a graduate of Tufts University.

Scott Lichtman

Nitron Advisors, Inc. is an independent research firm, specializing in providing institutional investors and law firms with real-time, frontline information through our proprietary Circle of Experts. Our clients learn from our experts through one-on-one consultations, customized surveys, and interactive events. Our clients include investment banks, hedge funds, mutual funds, private equity firms, and law firms. Visit www.NitronAdvisors.com for more information.

Scott Lichtman has nearly twenty years of experience in financial services, technology and consulting companies. Among his previous positions were oversight of Messaging/Collaboration Product Management and Marketing at Communicator Inc — a provider of communications, compliance and operations-related information services for institutional investors and brokers; Senior Director of Marketing at InterWorld, the e-commerce software provider that drove the online growth of firms including Nike, Disney and GTE; Senior Director of Strategic Marketing at Oracle Corporation — where he managed pricing, e-commerce sales support and business development; and IT & Strategy consultant at Deloitte Consulting. Mr. Lichtman also ran his own online-collaboration consulting firm, Vitaltouch Consulting, and in that capacity guided operations for a firm that provided banking services to low-income individuals. Scott has written analyst reports and articles on topics ranging from pricing strategies in the technology industry to online communities. He received an MBA from Harvard Business School, a Master of Economics from the London School of Economics and a Bachelor of Science degree from the Massachusetts Institute of Technology.

Paul Spillane

Through experienced sales and trading professionals, Soleil Securities Group connects institutional investors with an expanding network of accomplished independent research providers. They gather and filter insightful, actionable research ideas and deliver them to portfolio managers, buy-side analysts and trading desks. They also provide trading services through which asset managers can direct order flow as payment for the ideas and services they value. Paul Spillane has been in the securities industry for over 25 years. He started his career at Goldman Sachs, where he worked in fixed income, foreign exchange, commodities, futures, and options products. He then moved to Deutsche Bank, serving as managing director and head of global market sales for the Americas. Spillane subsequently transferred to global equities as a senior member of the executive team responsible for building the global equities businesses. Most recently, he was responsible for establishing Deutsche Bank’s Global Relationship Management program.

Paul Warme

Lusight is an independent investment research firm, with a focus on Global Emerging Markets. They have taken a unique approach to the production and distribution of investment research by developing a web-based Open Research Platform that allows clients to access our research reports, plus all of the inputs and tools we've used to produce our research, including company data, interactive financial models with base case forecasts, and a powerful analytical tool. Lusight conducts much of its operations in Toronto, leveraging an international research staff that has emigrated to Canada. Paul Warme is a co-founder of Lusight, and currently serves as Managing Principal and Head of Research. Paul has 15 years of international banking, M&A and capital markets experience. He began his career with Scotiabank's strategic investment group and was involved in evaluating and executing acquisitions in Latin America and Asia. He also spent two years in Chile advising Scotia's local affiliate on banking best practices, and one year in Mexico restructuring a distressed bank. Most recently Paul spent five years in New York as a senior analyst covering emerging markets financial institutions at Paribas and ING Barings, where he was also head of Latin America research. A Canadian citizen, Paul holds an MA from the Johns Hopkins School of Advanced International Studies.

PANEL

Doug Atkins: Majestic is a data-intensive research firm. Very technology- and data-based. Just like technology augmented the trading model, we're augmenting research through technology. We scrape 100m websites/month: number of eBay listings, what people are paying for keywords on Google, what 3500 doctors are prescribing, what they're offering as samples. Our team brings these multiple data sources together to give another perspective to investors on the companies and markets they have holdings in. The goal is to either track, confirm or refute their hypotheses.

Scott Lichtman: Nitron helps institutional investors increase their returns by providing direct access to senior industry experts. The experts we provide are used via phone and in-person consultations. These industry executives have highly specialized expertise and are provided on short notice, to comment on questions ranging from likely customer response to a new technology, to means of estimating production from an oil or mineral deposit, to predicting the impact of regulation impacting healthcare service providers.

We serve hedge funds, bulge-bracket prop desks, mutual funds, private equity and venture capital investors in the US, Canada and Europe. Our clients particularly find our service useful in two situations: a) a quick take on a situation for opportunistic investors that are scanning across sectors and continents for opportunities, and b) specific due diligence on an investment target by long-hold and private equity firms.

Paul Spillane: Our goal is to be the premier aggregator and distributor of intellectual content, providing a range of services to our clients. We do specialty dinners, bringing management on the road, etc. Our analysts only get paid if you, the consumer of research, value their insights and choose to pay them. We are a virtual research organization, partnering with outside, 3rd-party providers.

Paul Warme: announced as the ‘Canadian representative’ on the panel, as Lusight and all its analysts are based in Toronto. They not only serve BRIC (Brazil, Russia, India, China) but other countries such as Kazakhstan, Colombia, etc. We have both dedicated and opportunistic emerging market investors as clients.

David Weild: What does your firm do that investors value most?

Paul Warme: We focus on mid-caps/small-caps in those emerging markets. The companies usually are not covered at all, or only by local brokers. We deliver not only research product, but also all the models and raw inputs that went into that research. We do this with a proprietary research platform we developed---a workflow tool.

Paul Spillane: Some hedge funds like our anonymous trading desk, some like our recommendations, some like our access to management. Each and every client can use us as a virtual research dept.

Scott Lichtman: Clients value that Nitron’s industry experts are (1) senior, (2) specialized and (3) have fresh insights.

1) Senior. We seek the most senior experts to validate investment hypotheses of our clients. Example: a Senior EVP of Operations for one of the largest automotive firms; a chief strategist of a major group at Microsoft; the former chief of exploration for one of the world’s largest oil & gas firms.

2) Specialized. One client recently asked for an expert on the specific extraction costs and political conditions surrounding a proposed mining project in the Andes mountains. Only a small number of people in the world are qualified to answer that question.

3) Fresh. Because the questions posed to us are so specialized and because we reach over 100,000 experts to address requests, we’re careful to use experts sparingly. This means that the same opinion is often accessible to only one or two firms rather than the many that may receive typical published reports.

Doug Atkins: Majestic’s customers are looking for info that tracks, confirms, or blows out their investment thesis.

David Weild: What specific services are you focusing on now?

Paul Spillane: We're looking at 3-5 new research models/week that come out. Moving into fixed income—recently signed with partner that covers 350 fixed income issuances. Will soon expand into international services.

David Weild: I've heard of funds saying, "I'll be your 12^th customer, but I don't want you to take anyone else." How do you balance their desire for limited access, with your desire for growth?

Paul Spillane: Every client wants to feel like your #1 client. We spend a huge amount of time understanding our clients. They all want to be treated as individuals. In our model, we'll just provide best service to the funds who pay us the most----which is often not the largest company.

Doug Atkins: The traditional Wall Street model is hard to fathom. As an analogy, I'd love to get a car, drive it for a year, then tell the auto salesperson how much I’ve decided to pay for it. And maybe say, "I didn't use the car so much; I don't want to pay." We have 90% client renewal rate. Cover 110 names in 9 sectors. We also do a lot of custom work.

The way we address the challenge of balancing exclusivity with growth is through tiered access. We also will Dutch auction off our 'silver-bullet' data to 2-3 people.

David Weild: How do you all price?

Scott Lichtman: We provide more help when customer shares more about their strategy. We charge a quarterly retainer, or occasionally charge on a by-project basis.

Paul Warme: We're primarily a commissions-based model, which is what clients prefer. We spend a lot of time trying to figure out how to charge for our services.

Paul Warme: Subscription model. A lot of custom/bespoke work, priced on an ad-hoc basis. For clients who have formal internal voting processes, we're on the voting list for about 10 firms, and usually generate additional votes that mean clients pay us more than their base subscription price.

David Weild – It’s a sign of the dynamic nature of the research business that each firm here is using a variation of pricing models.

David Weild: How do funds measure value?

Doug Atkins: First, some thoughts on the regulatory backdrop:

+ Big issues are soft dollars. SEC just says there needs to be more disclosure.

+ Reg FD.

Paul Warme: A lot of Asian Emerging Market IPOs are taking place in London, partly to avoid the Reg FD/Sarbox issues.

David Weild: Good news: the SEC is very sensitized to the issue of over-reactive regulation, and trying to make US environment more friendly to attract more listings. I expect this legislation to be right-sized to be more accommodating.

David Weild: What are the biggest changes you expect to see in the research product or industry over the next three years?

Paul Warme: You'll see a proliferation of research models. Some of the innovations will be completely unexpected from today’s standpoint.

Paul Spillane: There will be a lot of consolidation. This is the most exciting time to be in the research industry. Next 3-5 years will be a cornerstone of next 25 years.

Scott Lichtman: Certain trends are evident though it’s hard to time the future. The New York State Criminal Code used to state that persons "Pretending to Forecast the Future" shall be considered disorderly and liable to six months in prison. But in terms of trends, traditional/background research is becoming a commodity---can be delivered quickly and thoroughly by PhDs offshore who are paid $25,000-$50,000/year (e.g., Evalueserve).

What you will see as one response to research commoditization is the aggregation of different forms of research in tools that aggregate multiple viewpoints on a market or issue. For example, with a research aggregator, we're now piloting the capability to pull up a ticker, review related research reports, then click on a 'talk to a relevant expert' button with professional biographies to review, all from one screen/one interface.

With the commoditization of traditional research and the decline of that economic model, I think we’re also seeing a significant reduction in coverage of smaller cap firms. The economics just aren’t there for the sell-side to provide as broad coverage as before. So instead people will come up with new economic models to address the ‘long tail of coverage’. In fact, we are announcing today a unique partnership with the National Research Exchange. They serve companies that want to deepen their coverage by facilitating research coverage, and we provide the experts who are readily available to analysts and investors to comment on markets. The experts are chosen and accessed independently from the covered companies, providing greater independence to their commentary.

Doug Atkins: The analog is what happened to trading platforms. Customers will be able to take fundamental data from Majestic, and combine it in-house with their own research.

General | Private Equity Investing | Public Markets Investing

=============================================================
                                            Seeking Consumer Technology Experts
                                            or New York Hedge Fund Dinner
                                            Wednesday, October 4th, 2006
=============================================================

We are organizing a dinner for consumer technology experts to talk with
hedge fund investors interested in this sector. This invitation-only event will be in
Manhattan on October 4th. You will have a chance to talk informally with some of the
major hedge fund investors in this sector.

We're looking for senior industry executives and other experts with the following backgrounds:

+    Personal computers (Dell, HP, Lenovo, Apple, etc.)
+    Flash memory (SanDisk, Kingston, Corsair, etc.)
+    MP3 Players (Apple, Creative, Archos, etc.)
+    GPS Systems (Garmin, TomTom, etc.)
+    Mobile telephones (Nokia, Motorola, Palm, Blackberry, etc.)
 

Qualifications: As an expert, you have at least four years senior experience in the consumer technology space. 
You have a “big picture” perspective on different firms in the space.

 
If you are not already a member of our Circle of Experts, please visit http://www.circleofexperts.com/apply-now.aspx
and apply to be a member of the Nitron Advisors Circle of Experts. Otherwise, please contact Lina Kalkandjieva, 1-212-682-6693, Lina@nitronadvisors.com, with any further questions.  Please note that we must review your bio and talk with you before we can accept you for the dinner.  

General | Private Equity Investing | Public Markets Investing | Securities Research

General | Leadership and Management | Private Equity Investing | Public Markets Investing | Securities Research

General | Private Equity Investing | Public Markets Investing | Securities Research

Nitron Advisors' COO, Scott Lichtman, took detailed notes on last Thursday's panel on "The State of Independent Research" at the New York Society of Security Analysts.

It was a well-attended event that covered questions ranging from how independent research firms are capturing value through new delivery models to the impact of Elliot Spitzer's global research settlement and prospects for research jobs on the buy-side and sell-side.

NYSSA notes that, 'These are the opinions of speakers at NYSSA's Career Chat on Independent Research and do not necessarily reflect the opinions of NYSSA or its members. NYSSA does not endorse or promote any of the opinions or products mentioned.'

SPEAKERS

Eric Alexander, President, Institutional Services, Wall Street Access
Michael W. Mayhew, Founder and CEO, Integrity Research Associates,LLC
Paul Spillane, President and CEO, Soleil Securities Group, Inc.
David Teten, CEO, Nitron Advisors
David Weild IV, President and CEO,The National Research Exchange
CHAIR: Richard G. Lipstein, Boyden Global Executive Search BIOGRAPHIES

Eric Alexander is president, institutional services, for Wall Street Access, which offers research and execution to hedge funds and money managers.

 He is responsible for strategic development of the firm’s research offering, including coverage of mergers and acquisitions, energy, healthcare, and special situations.

 Previously, he served as director of marketing, and was instrumental in forging strategic relationships that helped the firm grow over the next decade.

 Prior to joining Wall Street Access, Alexander was a vice president with the public relations firm Burson Marsteller, where his clients included AT&T and American Express.


Michael W. Mayhew is founder and CEO of Integrity Research Associates, LLC, a ratings, analysis, and consulting firm for the equity research industry.

 Prior to founding his firm, he was CEO and president of Garban Information Systems, the financial information division of Garban/United News & Media.

 Previously, he was director of strategic planning and business development for Standard Poor’s Financial Information Services Group.

 Mayhew has been quoted widely by various newswires, newspapers, and industry magazines, including Reuters, Investment Dealers Digest, Institutional Investor Magazine, Bloomberg News, Forbes, The Wall Street Journal, The New York Times, Financial Times, and Business Week.

 He is a member of the Board of Directors of Investorside, the nonprofit trade organization for the independent research community, and chairs a committee of the board to establish best practices for the research industry.

 Paul Spillane, president and CEO of Soleil Securities Group, Inc., has been in the securities industry for over 25 years.

He started his career at Goldman Sachs. where he worked in fixed income, foreign exchange, commodities, futures, and options products.

 He then moved to Deutsche Bank, serving as managing director and head of global market sales for the Americas.

Spillane subsequently transferred to global equities as a senior member of the executive team responsible for building the global equities businesses.

 Most recently, he was responsible for establishing Deutsche Bank’s Global Relationship Management program.

David Teten is CEO of Nitron Advisors, a unique research firm that provides hedge funds, private equity funds, venture capital funds, and law firms with direct access to a global network of carefully selected frontline industry executives, scientists, academics, and consultants.

 David also is the coauthor of The Virtual Handshake: Opening Doors and Closing Deals Online, the first business book describing how to take full advantage of blogs, social network sites, online networks, and other "social software.

" He runs TheVirtualHandshake.com, a resource site and blog, and co-writes a monthly column for FastCompany.com.

 Teten was CEO of an executive recruiting firm that he sold to Accolo, and CEO of GoldNames, an investment bank focusing on serving the internet domain name asset class.

 He has worked with Bear Stearns’ Investment Banking division as a member of their technology/defense mergers and acquisitions team, and was a strategy consultant with Mars & Co.


David Weild IV is president and CEO of The National Research Exchange (The NRE), an innovator in products and services that support capital formation.

 The NRE provides patent-pending analytics and facilities that enable the systematic evaluation and long-term funding of research and related services.

 Weild served as vice chairman of The NASDAQ Stock Market and spent fourteen years at Prudential Securities, where he served as president of PrudentialSecurities.com, head of corporate finance, head of technology investment banking, and head of equity capital markets.

 He also chaired Prudential’s Equity New Issues Commitment Committee.

 PROGRAM DESCRIPTION The entire research industry is undergoing a seismic shift that will produce both winners and losers in the coming years.

Some of the more innovative research providers will continue to experience growth, while the total number of independent research firms is to expected to fall almost two-thirds by 2009.

 The need for good research, however, will never go away. Learn the reasons for the coming shakeout and how you can be among the success stories.

 Scott Lichtman's notes: Richard Lipstein Question: Please describe your business models for independent research. David Weild IV: We are a utility for Wall Street to get research paid for explicitly, while achieving coverage and liquidity for smaller public firms.

Coverage continues to be shed across the industry. Fewer IPOs are symptomatic of this. There were < 200 IPOS in each of last 3 years.

 Pre-bubble, there were 460 IPOs/year avg. We have 14 patents.

David Teten: We provide access to frontline industry experts who can provide deep insight into the companies and industries you are analyzing.

 There is a circle of economic agents around any company – suppliers, customers, regulatory observers-- who are in an appropriate position to provide fresh information to investors.

 We provide access to that circle.

 This means your analysts are drawing conclusions and making the buy/sell recommendations (not us), while you benefit from ready access to unique sources.

 There are three trends that drive the fast growth of our model:


1) The destruction of credibility of sell-side research.

2) Trend towards more people, including senior executives, who are managing their careers individually, without assuming they are wedded long-term to a given firm. These "corporate alumni’ are an exceptional base of knowledge.

3) A trend towards people having a public, articulated virtual identity, through personal web sites, bios and resumes online, social network sites, and software that is aggregating people’s backgrounds into a chronological whole.

I discuss these technologies in more depth in The Virtual Handshake- Opening Doors and Closing Deals Online.

We are actively seeking out consulting firms and individuals who would like to consult through our platform.

Paul Spillane, Soleil Securities. Our goal: Premier aggregator and distributor of intellectual content.

We are a registered broker dealer. We have a significant distribution platform, analysts all around the country and an agency trading desk in New York.

 Covering 320 stocks, 32 analysts, 3-5 alternative products. Analysts work when they want, get paid based on deliverables.

Incorporating Fixed income, Commodities, Equities, and commentary on data sources.

If you can think of a new idea, you can provide content in our model. We are looking for employees, firms to partner with and new sources of content.

 Michael Mayhew: Integrity is the leading provider of information assessment and evaluation on the research industry.

We publish research on the industry including a blog, web-based tools, due diligence on 436 research firms. Now adding 60 firms in Europe to the database.

 We help funds find research to add alpha, and mitigate risk in using research. Very little due diligence is typically done on hiring a research firm, especially compared to investing in a fund or fund-of-funds.

 We help funds reduce their risk in hiring a research firm.

 Eric Alexander: We offer clients an integrated service, including access to a team of leading analysts in M&A, special situations, oil and gas, utilities and agribusiness.

 We also offer clients access to a proprietary network of healthcare experts.

 Also have a trading desk – important for clients to gain a full range of service and for us to get paid appropriately.

We customize offerings for each client. Richard Lipstein Question: What are challenges facing independent research firms.

David Teten: Research has a very unusual economic model: You usually get paid well after the service is delivered, you usually don't know how much you'll get paid, and neither seller nor the purchaser knows the exact value of the service.

The value of research varies enormously from highly negative to many millions of dollars, yet it's not common to define, let alone track, the metrics to place a value/price on it.

Also, declining commissions on a per trade basis are putting pressure on the economic equation.

Michael Mayhew: 2 major trends.
1) Biggest challenge is proving value, day in and day out.

The kind of research that could be sold 20 yrs ago has changed. Today folks want trading ideas and proprietary data points.

Very large % of research firms have a tough time proving value, and probably shouldn’t be in business.

2) Getting paid is hard, even if you prove value. David Weild IV: A rough statistic: He took all research analysts, divided by (monthly) trading volume, and got 20,000 shares/analyst. If 50% is program-based, 50% of what's left is algorithm based, and therefore there's only 5,000 shares traded to pay each analyst.

 That's roughly 250 shares/day. At 5c/share that is not a lot of money to spread around, and 5c is a high figure by current trading standards.

 The business is fundamentally bankrupt at some level.

 Clients want 3 things – 1) access to management, (2) experts, (3) traditional research. People want things that no one else has.

Eric Alexander: A lot of what the industry does is a commodity.

 Some of the forms of compensation are a thing of the past.

 It’s much more entrepreneurial now.

Richard Lipstein Question: Buyside firms are decrying the lack of research but cutting back on # of research suppliers.

How did we get in this contradictory situation? David Teten: The buyside is not seeing enough compelling research from the sell-side.

 However, the number of buyside analysts is way up, which shows a commitment to proprietary sources. Michael Mayhew: Other trends are happening too.

 There will be a significant reduction in # of firms getting paid. Firms will separate research fees and execution fees.

You may only have 20 firms getting commissions, but hundreds getting research checks. Richard Lipstein Question: Paul, how does one manage a virtual corporation? Paul Spillane: Everything about the decline in research firms/getting paid is music to our ears.

This is the only industry I’ve seen that has no idea of COGS (cost of goods sold).

We love a value-driven model.

 If you can add value, clients will pay you unlimited amounts.

 So good analysts in their virtual workspace are making 2-3x what they did in a bulge-bracket environment.

"We manage by compensation."

The industry needs to get away from the lack of connection between quality and reward – casual votes on who should get what.

We have the same regulatory framework that any registered broker-dealer has, with the analysts being registered 86s or 87s.

Our good analysts work "24x7" at times because they love the work and get paid well, and other times take a break.

"It’s an absolutely fantastic time to be an analyst. The bottom is here."

The # of stocks covered by bulge-bracket firms is going lower and lower. The bottom line is here, there will be less people around, but those who are good will be making money.

 Like Nitron, we only pay an expert when they get a phone call. Eric Alexander: Research revenues might go from $3.9bn to $3.6bn, but it's still a big opportunity.

 David Weild IV: Wall St research firms are getting smart that they do get paid. Roughly 50-70% of bulge bracket revenues for an offering are for the deal, and 30% is to provide coverage, but the funds aren’t always allocated to that purpose.

It seems like Reuters and Thompson want to know who is consuming their research and cut out people who are drinking for free.

The tide is turning on getting paid. Eric Alexander: We are still committed to trading desk model. It’s hard without a desk; it's integral.

 The buyside sees their traders as integral to their team and so do we.

 AUDIENCE QUESTIONS Q to Soleil: What does it mean for an analyst to "deliver" value and get paid commensurately? Paul Spillane: There are many ways to signal how to pay: a voting mechanism, # of visits set up, commissions paid. Clients now are responsible, e.g. Via the UK's regulations, to say how research is allocated.

More hedge funds have a formal voting mechanism due to regulatory requirements.

 Checks come in with specific analyst names on them to us.

Michael Mayhew: All about producing good research.

 To one client that’s management access, to another it's industry expertise, and to another it's performance recommendations.

Issue is that if you produce me-too maintenance research, models that don’t outperform, you have to worry.

Question: What about outsourcing research to India and other places.

Eric Alexander: This question is symptomatic of how much has become commoditized. Reg FD has commoditized information.

Michael Mayhew: Couple years ago, the avg cost of wall st to cover a company was $192K – per company.

There was an absolute need to lower that cost, so moving some research oversees made a lot of sense.

But value-add of a research firm can’t be outsourced. David Weild IV: But you can create new value by leveraging offshore resource.

 It may become a necessity to have competency in offshore inputs.

Paul Spillane: The last mile is where the value is. We get 7 calls/month from Indian firms to provide us with outsourcing.

Most of those analysts don’t have 86s/87s and don’t talk to management.

 Offshores won’t complete with mainline analysts, they will focus on filtering through existing data in more conventional ways, at least for now.

 Offshore won’t be a huge threat.

 We think $8bn will be paid out, over time, in hard research.

 If you look at outsourcing initiatives in the technology world, JPM outsourced their platform to IBM in a multi-billion deal, but brought it back in-house when the deal expired.

 We’ll all experiment with it, but when cost goes up for offshore it will lose competitiveness. We used to pay $25K for an associate abroad, now its $50K.

 Richard Lipstein: One bulge analyst I know is having increasing quality issues, exacerbated by language barriers, time differences.

They didn’t see benefit anymore. Michael Mayhew: I’m concerned about long term risk. If we outsource associates, when do future senior analysts come from? Are we going to hire the offshore people and bring them here? David Teten: All of this gloom & doom is great news for Nitron.

Offshore people working off same public data further commoditizes publicly available analytics. Basic Yahoo! finance data is free.

There are so many hedge funds out there, and they're all obsessed with chasing alpha, which they can't do with the same tools as everyone else.

 (The hedge fund incubators, incidentally, remind me of the dot-com incubators we used to see, which is a sign that there is a surplus of hedge funds. 2006 is the first year when we're on track to see more hedge funds shut down than open up.)

Audience Question/Observation: In the last few years, lot of great info free on internet has become available in forms of blogs.

Incredible corporate-experience types, speaking their minds and providing insights while going after eyeballs.

They are getting paid $550K/year monetizing eyeballs (Editor's note: I know extremely few bloggers earning that type of money!).

Paul Spillane: This industry has to recognize that as a threat. The audience member asking the question has worked in tech – so she's better able to know where to find quality information.

 The insights aren’t there for (isolated) associates to make money.

 Michael Mayhew: There is a model that’s been developed over a few years, for readily available info: Research that is restricted to small # of clients (and which delivers alpha).

Hedge funds will pay lots and lots of money for restricted access, which means 30,40, or 60 clients. Hedges won’t trade off blog content because it's available to thousands/millions of people.

Also, most hedge funds don’t want to say: "if this deal blows up, I’ll tell my manager I got the info free off the internet. " Give me a break! David Teten: If I have really good info, am I giving it for free on a blog? Publicly-available information (on a blog, New York Times, etc.) is designed to be relevant to the average person.

 If you want customized analysis for your portfolio/your situation, then you typically pay the person who produced the analysis that's broadly relevant. He proves his credibility with his general analysis.

Eric Alexander: Blogs are a threat. Collaborative relationships deliver distinct ideas. You need a talented, experienced analyst with an expert network to find the alpha idea.

Blogs don’t work standalone but they are a valuable contribution.

 Paul Spillane: Most investors have an overload of info.

 We have a product to grade blog: Collective Intellect.

Using AI to sort through hundreds of millions of blogs a day to rate for accuracy.

This product is on desks of some of the largest prop trading desks in the world.

It can be a CYA, but you can’t sort through all the available info and it becomes more productive.

 Audience observation: Great bloggers are identified and filtered by word of mouth.

 Experienced people don’t read every single blog.

Paul Spillane: But imagine if you can also grade them all.

 We’re excited about the prospects.

David Weild IV: In my west coast conversations, a lot of funds are using expert networks.

 One guy I spoke with was a well respected 1990s internet analyst.

 Widely followed. He said that one key problem with Wall St research is deteriorated quality.

 Because of Reg FD, executives are uncomfortable with sharing corporate info.

 Sourcing of independent experts has become very important.

 One guy is using expert networks to do due diligence on potential portfolio co’s.

 Won’t replace need for direct access.

Audience Question: What’s the career opportunity and income oppty for sell-side analysts.

Do you see migration to buyside? What about buy/sellside relative compensation? Eric Alexander: It’s important to be part of an organization with a regulatory structure, so the analyst can focus on the work.

 There’s an opportunity to be more entrepreneurial these days.

Locked in salaries and guarantees are much less available.

Richard Lipstein: The top of the Internet bubble skewed compensation and demand for analysts.

Comp for internet analysts gone down significantly.

They used to be able to make 7-8 figures.

Compensation has bottomed out because of disappearance of guarantees and extreme salaries.

 Not easy for sell-side analyst to move to the buyside because they’re viewed as a salesperson.

 However, hedge funds hire more sellsiders, young ones, than mutual funds.

 It’s worth noting that a typical analyst will make more than 98% of the US population rather than 99.9% in the past.

 Paul Spillane: You summed it up perfectly. It’s not easy to move to the buyside.

But everyone is still paying people 6-7 figures.

A lot of doctors, lawyers, fireman who don’t get paid that – who arguably provide critical value to society.

David Teten: I saw a talk by a prominent person in the research industry, who said, "If you meet an analyst that’s been on sellside for more than 5 yrs, they’re not good at picking stocks, because if they were, they'd get a job on the buy-side."

There is increasingly a disaggregation of analyst's responsibilities. Management access is highly valued by the buy-side–but that’s a concierge service firms like ours (Nitron) do more effectively than generalist research firms.

 Richard Lipstein Question: The typical independent research firm is much smaller than bulge bracket dept.

 There have been problems, eg Overstock.com took a research firm to court for allegedly being part of a plan to devalue and short sell the stock.

 How can small firm deal with intimidation of big corporation, particularly when issuing negative research? Paul Spillane: Associate yourselves with a firm with strong compliance.

 Reputation of your employer is important to focus on when you are an analyst.

Unless you commit fraud, you are in a good position to make clear statements - your opinion is your opinion.

One analyst whose opinion dropped a stock 50% (is rumored to have) received death threats – from a retail firm! Richard Lipstein: I think it’s more an issue of small research firms can't cover legal costs to defend themselves.

 Paul Spillane: Agencies like SEC, NASDAQ won’t allow that intimidation…and the First Amendment. Eric Alexander: Be clear who the customer is.

It's not the company covered, it’s the investor.

 Paul Spillane: WSJ or NYT would love to ‘defend’ the small guy with strong opinion.

The court of public opinion doesn’t cost much. And it's great PR. David Teten: Most of time, the analyst is doing right thing.

 Owen Lamont research showed that, the more a corporation fights a critical analyst, the more likely it is later on that the analyst is correct.

Jeff Skilling said "They’re on to us," in response to a certain piece of independent research.

That's a great ad for independent research! (As Jim Chanos pointed out in a recent talk).

Audience Question: Given internet bubble, do you see another shakeout? David Weild IV:

There’s a rationalization, but other models are flourishing.

The big shoe that dropped wasn’t the bubble, it was decimalization in 2001.

 That cuts 95% of the commission flow.

 The internet brought direct transaction models and commission compression – commission went from $350 avg to 5 bucks.

David Teten: Creative destruction is a benefit, not a bug, of capitalism.

Net net, people are making a lot of money in finance.

The industry is always evolving, companies change, people move around, but the quality people do just fine.

 Michael Mayhew: For sell side research, unbundling will have a big impact.

When asst mgr has ability to select research and broker independently, that will really impact someone like Goldman Sachs.

 If they charge 4c/sh, how much is for research and how much will get they for this Question: What’s the track record of Spitzer agreement to channel $s to indie firms?

Eric Alexander: Some large firms got huge funds channeled to them.

We’re not in that space at all. I’m hopeful this is over soon, it hasn’t been effective at all.

David Teten: Spitzer uses lawsuits effectively for gubernatorial campaigns, but not necessarily in the pursuit of justice.

Someone asked a panel I participated on earlier this year "where should I invest, as a retail investor?" Look, you as a retail investor have the worst information and the worst prices.

You're much better off hiring a professional, by putting your money in a mutual fund, hedge fund, or hiring a Financial Advisor.

Spitzer agreement was a solution in search of a problem.

The retail investor will almost inevitably have inferior returns to the professional, because of the nature of the industry.

 Richard Lipstein: The Wall St. Journal said ‘you can’t legislate against greed’. David Weild IV: I’ve talked to many of the NASD regulators.

 All agreed that the Spitzer agreement has been an "absolute disaster".

 Jack Coffee, of Columbia, on their board, calls it a new form of government.

It has created a level of paralysis – 3 years left, and firms are afraid to innovate.

Every bulge bracket says behind close doors won’t pony up again.

It hasn’t expanded coverage to new names. It was a grand experiment that failed. "This is a drug."

Has failed to expand coverae.

The audience member asked what are usage statistics for the independent research that had to be posted.

 5% of retail hits are on the indie research, the rest is from the main provider.

 The only success from the agreement is focusing people on the problem – Wall St research has greater integrity today.

Teten: There is one pressing, highly important public policy goal that the Spitzer settlement achieved: Spitzer won the primary. Question: Comment on future consolidation in independent research firms.

Is pace likely to quicken? A panelist said there are over 400 firms today. Michael Mayhew: 450 firms in N. America. We certainly believe in consolidation but not across the board. Restricted providers will do quite well.

Fundamental data-based research will consolidate.

 My partner has argued that research is frankly a lifestyle business for many.

 If you have a dozen clients paying $100K each, you can have a nice business for a few analysts.

I suspect the number therefore will be unusually high, but fundamental traditional research will find it increasingly difficult to get paid.

 David Teten: Consolidation per se doesn't concern us.

I would be worried if the overall pie shrinking dramatically.

But to my knowledge, expert networks are the fastest growing sector in the research business.

 Consolidation means we buy or get bought, and there are worse things that can happen.

 Eric Alexander: For full disclosure, my business partner in the audience asked the consolidation question.

 The alternative to a lifestyle approach to making some money in research is being part of collaborative effort.

 When someone like Monsanto wants to do a deal, they can turn to one of our deal specialists.

 Richard Lipstein Question: What about the idea of a corporate rollup, e.g. how Eric Alexander got Foresight. Eric Alexander: That wasn’t an acquisition but a subset of analysts were attracted to our platform.

 David Weild IV: Question for Michael--What # of firms have > 5m revenues? Michael Mayhew: Quite small, < 10% of 450. Lot of folks with $1m revenue.

Some consolidation when firms go out of business, other when firms get bought. Question: Going back to the value of research, how is the way investment firms are compensated linked to value? In an unbundled world, mutual funds are asset-based profit-makers, not performance based, so they should worry less about costs.

Hedge funds are compensated by assets and performance, so they are looking for research value. Would mutuals prefer bundled research? Michael Mayhew: The audience member asks analysts how they judge good research.

They say, "I’ll know it when I see it." This means, many buy-side people don’t know what makes good research to them.

That only has a chance of working if they get research for free, use it, then decide later on if they liked it, but its still subjective.

David Teten: There are 3 reasons why hedge funds are desirable clients.

They have a lot of money compared to cash/overhead requirements, they don't usually have an easy way to measure the value of your unique product (compared with tools available to measure ROI if you are selling, e.g., bottled water to them), and they are paying with soft dollars, i.e., other peoples' money. I have problems with how soft dollars are used when applied too broadly, but the system works to the benefit of research firms.

Eric Alexander: It’s a lot harder for a research firm to penetrate/develop business with large mutual fund. "I’m sitting with a fire hose of info" says one large-fund portfolio manager.

 They need barriers to access, not more info. Question: What are new models on how to pay for research: Is it arbitrary or still predominantly through trades? Paul Spillane: 85-90% is still via soft dollar.

 It will take a lot longer to wean off than anyone thinks.

 If a large mutual fund company wanted to separate costs, it could be 3% of their management fee.

 For a smaller firm, its entire management fee could be allocated to research cost. Richard Lipstein Question: Last question.

For someone looking to get in the research business, what does this business mean for the up-and-coming professional? Eric Alexander: Paul Spillane and I say same thing.

Be good, and be entrepreneurial.

If you have been a salesperson, bone up on analytics.

If you are an analyst, participate in selling.

Michael Mayhew: Ample opportunities for good and great analysts.

A lot of analysts have spun off with high expectations.

Paul Spillane: If you love it and are passionate about it, there’s never been a better time.

 If you don’t love it, join a bulge bracket firm.

You get real motivated when you wake up thinking "how am I going to make money for my family?" David Teten: Be focused to add value. There is a story, true I believe, of one analyst making over 2 million covering one stock (McDonald's).

 Pick a domain you can own, then become the recognized expert in that domain. David Weild IV:

1) Being a research analyst is a wonderful thing, whether starting independent and or bulge bracket.

You learn a real discipline in a dynamic market (securities).

You can switch to private equity or corporate side. It’s a great training ground.

I’d like my kid to do this.

2) Just to mention separately, this is anniversary of 9/11.

 There is a wonderful organization on that was on 60 Minutes called Tuesday’s Children, which provides services to kids who lost parents.

Helps them get through college. Annual event at Cipriani’s 9/27.

They placed kids on take-your-child-to-work day. I’m on the board of directors.

Please consider supporting them.

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Having just returned from Paris (and now sitting in London), I was curious to read Rawi Abdelal's thoughts on how Europe, particularly France, wrote the "rules" of global finance.

Key concepts include: * European policymakers, particularly the French, created regulations and enforcement that govern the majority of the world's capital flows. * The U.S. has followed an ad hoc approach to capital liberalization, with no evidence it supported a liberal international financial regime. * The trend toward liberalization and a lessening of capital controls on worldwide finance appears to be on the wane.

more

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I'll be speaking in London next week and hope that you will join us:

Straight from the Horse's Mouth: How Professional Investors Elicit Maximum Information in Minimum Time from Industry Sources

Sponsored by the Harvard Business School Club of London Thursday, September 7, 6:30pm Offices of McKinsey & Co., 1 Jermyn Street near Piccadilly Circus, London RSVP and prepayment: http://www.hbsa.org.uk/cgi/hbs?do=index&page=event&event=222

Cost: £10.00

"Interviewing industry sources requires a broad range of skills which I didn't learn in business school: rapport-building; how to open a conversation to start off on the right foot; how to close a conversation and keep the door still open. Nitron Advisors has helped me to interact with experts more effectively, learn more from them, and make better trading decisions. Nitron showed me how to ask the right questions... And how to help an expert teach me how to ask the right questions! Any investor without this skill set is at a significant disadvantage in the war for alpha." - Partner, Multistrategy/Convertible/Credit Arb $500M fund, New York, NY

As a professional investor, you speak every day with corporate management, with industry sources, and with other knowledgeable experts. However, are you getting as much information as possible? Do your sources pro-actively contact you with new investment ideas? Do you have access to the right sources for your business?

David Teten, CEO of research firm Nitron Advisors, will fill the gap. Come learn:

+ How can I learn the most information possible from industry sources?
+ What questions should I ask?
+ What are the killer phrases NOT to say?
+ How do I build a pool of knowledgeable sources in the industries in which I invest?
+ What questions prompt sources to share their most valuable information?
+ What are the legal and ethical guidelines that I should think about when speaking with sources?

There are countless books on how to read a balance sheet or an income statement. However, when you actually measure how professional investors spend their time, they spend perhaps half of it talking with management, attending conferences, and in other ways learning from industry sources. Yet, there's not a single book on Amazon or course in business schools on how to do that effectively. We fill this gap.

Who is Nitron Advisors?

Nitron Advisors provides professional investors with precise answers to their questions about specific companies and industries, by tapping our exclusive Circle of Experts of thousands of knowledgeable industry insiders. You can learn directly from the Experts through private telephone consultations, in-person customized surveys, and interactive events. We provide access to senior executives, local managers, technologists, suppliers, customers, and regulatory observers. We specialize in connecting you with executives in transition.

By the nature of our business, we have developed an in-house expertise in elicitation, and developed this training program for our clients as a "User's Guide" to our services.

"By talking with a Nitron Advisors expert, our…conversation led to north of a million dollar profit for us and our clients. Within 48 to 72 hours, I was trading facts with the actual person we wanted to be connected to, and that allowed us to form an extremely fast, investable idea." - Lyron Bentovim, Managing Director, SKIRITAI Capital, New York Post, August 7, 2005

Biography of Speaker

David Teten is CEO of Nitron Advisors.

 David is also the lead author of The Virtual Handshake: Opening Doors and Closing Deals Online, the first business book about how to use online networks to accelerate sales and raise capital.

He runs TheVirtualHandshake.com resource site and blog and co-writes a monthly column for FastCompany.com. David recently was named a "2005 Future HR Leader" by Human Capital magazine for Nitron Advisors' unique use of social software for recruiting.

 David serves on the Advisory Board of the Word of Mouth Marketing Association and of Accolo, a recruitment process outsourcer.

David is a frequent keynote speaker at finance and technology industry conferences and at such universities as Wharton, Columbia Business School, Yale, and Princeton.

He formerly was CEO of GoldNames, an investment bank focusing on serving the internet domain name asset class.

 He has worked with Bear Stearns' Investment Banking division as a member of their technology/defense mergers and acquisitions team, and was a strategy consultant with Mars & Co. David holds a Harvard MBA and a Yale BA.

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Thanks to the American Mathematical Society, Dartmouth is giving away the much-praised textbook, Introduction to Probability by Charles M. Grinstead and J. Laurie Snell, as free etext. The website also includes computer programs to go along with the book. Link Via http://www.boingboing.net/2006/07/03/introduction_to_prob.html

General | Personal Productivity | Leadership and Management | Career Acceleration | Private Equity Investing | Public Markets Investing | Securities Research

Yahoo Finance (http://finance.yahoo.com/) has a link on each summary page that allows the user to download the stock information in CSV format.

What is less well known is that there is a URL which allows direct access to stock information without having to parse any HTML or even XML.

The format is http://finance.yahoo.com/d/quotes.csv?s=STOCK_SYMBOL&f=FORMAT_STRINGso to get Vodafone's ask price the URL would be http://finance.yahoo.com/d/quotes.csv?s=VOD.L&f=aA full description is available at http://www.gummy-stuff.org/Yahoo-data.htm You can then import this data automatically into Excel. More... Via Frans King

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My colleague Scott Lichtman took some detailed notes on the TieCONEast panel last week on "Trends in Investment Research and Due Diligence".

 Podcast is here.

CONFIRMED SPEAKERS

Graham Field, Managing Director, AQ Research (Moderator) Graham is the Managing Director of AQ Research, which provides quantitative global analysis of the accuracy of sell-side research. Graham established AQ Research in 1998, having worked as a financial journalist since 1987.

He was editor of Asiamoney and of the International Tax Review, as well as presenting business programmes on BBC radio and television.

Graham’s books include Economic Growth and Political Change in Asia (1995), Japan’s Financial System: Restoration and Reform (1998) and Euroland: The Future of Europe’s Capital Markets (2000). He is a graduate of Cambridge and London Universities in the UK

Susan Oh, Director & Senior Analyst, Merrill Lynch Susan's responsibilities include manager research and the analysis of hedge funds.

 She is also the portfolio manager of the Merrill Lynch Event Driven Fund. Her focus is on invested managers as well as identifying new funds.

 Prior to joining MLIM, Susan was a Senior Analyst at Tremont Capital Management.

At Tremont, she conducted due diligence on hedge funds and strategies to make strategic recommendations to the Investment Committee.

Her other experience includes Citco Group Ltd. and Smith Barney, Inc. Susan was a hedge fund analyst for Citco and an Institutional Sales Assistant at Smith Barney in the hedge fund group.

Dave Furneaux, Founder & Managing General Partner, Kodiak Venture Partners Prior to Kodiak, in 1996, he co-founded Furneaux & Company, LLC, a seed stage high technology venture investment company.

He was the founding investor and active Chairman of the Board of Extreme Packet Devices (acquired by PMC-Sierra) and Philsar (acquired by Conexant).

He also was a founding investor, Vice President of Business Development, and member of the board of Skystone Systems (acquired by Cisco Systems), a founding investor in Solidum Systems (acquired by IDT) and an early investor in Telica Systems (acquired by Lucent).

 At Kodiak, he was an active early investor in AuroraNetics (acquired by Cisco Systems), Watchfire and Raza Microelectronics.

Gregory Locraft, Vice President, MFS Investment Management Gregory Locraft is the Vice President of MFS Investment Management and a Portfolio Manager of the $2billion MFS Capital Opportunities Fund and related portfolios. Mr. Locraft joined MFS in 1998 as a research analyst.

 He became a member of the Large Cap Growth Portfolio Management team in October 2003 and was named Portfolio Manager of MFS Capital Opportunities Fund in December 2005.

Previously, he was a Senior Consultant for Kaiser Associates, Inc. Prior to that, he was a Financial Consultant for Smith, Barney, Inc. He received a Bachelor of Arts degree in Political Science and History from Williams College and an M.B.A. from Harvard University.

David Teten, CEO, Nitron Advisors Bio...

Scott Lichtman's notes: Furneaux: $700M under management. 8 partners. investing throughout the northeast, and also some emerging markets. 50% of investments are with people we invested in before.

As a Private Equity firm, we are constantly communicating to our managers to find depth in companies.

The average time from startup to IPO is 8 years, from IPO to acquisition is 6 years.

To pick the right companies, combine analyst inteligence (awareness and insight) with due diligence. Locraft: Good researchers are leaving sell-side and traditional buy-side & going where there’s a piece of the action.

Teten: Gave overview of Nitron Advisors' business model. Quoted prominent industry CEO, who said, "If you’ve been in research > 5 years, you’re not a good stock picker." Locraft has 45 analysts.

Average hold on a stock in the market is 11 months. 40% of trading volume is from proprietary desks.

They compensate staff to think long-term, which they define as 3 years.

They usually only invest in companies with >$500M in assets. MFS is a $170B firm with $2B in Greg's fund.

"The level of scrutiny we've undergone at MFS has made us take a whiteboard approach to the P&L." MFS is concerned about raw trading costs.

Susan Oh: Our area invests in all major strategies: long-short equity, relative value driven, CTAs, global macro.

She focuses on event-driven.

 Due diligence starts with an on-site visit. We look at management, firm, infrastructure, risk management, operations. red flag: concentrated investor base.

Such investors may have preferential rights...which could hurt smaller investors.

 Field: What is the quality of sellside analysis information? Do you compare internal analysts with sell-side? Locraft: Yes – analyst compensation is based on stock picking results vs. sell-side recommendations.

 We use AQ's competitor, Starmine. Field: What if your analysts aren’t that good? Locraft says there are certainly cases where some analysts are better than others, and therefore some of our analysts by definition aren’t top of field.

MFS will pay accordingly for specific sell-side analysis in these cases.

 But we recognize the disadvantage of information being disseminated to all parties at the same time via FD. David Teten: How do you measure ROI of research? Oh: One hedge trader I knowwill only buy research when it’s contrarian to the general street consensus.

 Locraft: ROI on a good analyst's picks is enormous – so massive it’s not worth measuring.

Dave Furneaux: the early stage challenge for PE/VC investors these days is that there is more money than opportunities.

This means for any evident investing opportunity the returns are lower due to increased competition for investment dollars.

So the key is to find an investment idea others don’t know about or appreciate.

Events | General | Private Equity Investing | Public Markets Investing | Securities Research

Seeking E-Commerce / Internet Experts for Boston Hedge Fund Dinner, June 22, 2006

We are organizing a hedge fund dinner for E-Commerce / Internet Experts in Boston on June 22, 6:30pm.

This is a chance for you to talk with and learn from some of the major hedge fund investors in this sector.

 We're looking for people with the following backgrounds, preferably with strong international background:

 + Search-engine-optimization expert (e.g., Reprise Media, competitors)

+ Large eBay power-seller, or someone knowledgeable about the eBay drop-off franchise business (e.g., Auctiondrop, iSoldit, QuickDrop, etc.)

+ Voice-over-IP executive/expert (e.g., Skype, Vonage, etc.)

+ Online travel industry – possibly with experience at a meta-search travel site (e.g., SideStep, Farechase, Kayak, Mobissimo, etc.)

 + Executive or expert familiar with the job search or jobs classified business (e.g., Monster.com, Craigslist.org, HotJobs.com, Careerbuilder.com, Dice.com, Indeed.com)

+ Paid search (or general online) marketing from the perspective of an ecommerce business

+ People familiar with the competitive environments of the following companies: Audible.com, Amazon, Ebay, Monster, Netflix, Blockbuster Online, Overstock, Red Envelope, Bluenile, CNet, Google, Infospace, iVillage, Microsoft online, Yahoo, Orbitz, Ctrip, Expedia, Travelzoo, Skype, etc…

Qualifications: As an expert, you have at least four years senior experience in the Internet/e-commerce space. You have a “big picture" perspective on different firms in the space.

If you are not already a member of our Circle of Experts, please visit http://www.circleofexperts.com/apply-form.html?i=11 and apply to be a member of the Nitron Advisors Circle of Experts.

Otherwise, please contact Mr. Avi Mally, [1] (212) 682-5874, amally(@)nitronadvisors.com, with any further questions. Please note that we must review your biography and talk with you before we can accept you for the dinner.

Events | General | Private Equity Investing | Public Markets Investing | Securities Research

John Doerr's Startup Manual is still timely (even though it dates from 1997). Via Marc Cenedella's blog

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Don’t be so quick to try to get rid of your extra change. For the first time since the composition of the penny was changed to make zinc the primary component, Josh Wolfe reports that the raw materials that constitute pennies and nickels are worth more than the monetary value assigned to them by the US Treasury. With gains of 75% on zinc and 70% on copper this year, could melting coins become the next big black market business in the US (since it is, after all, prohibited by Federal law)? Hat tip to Jonathan Rhinesmith

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The MBAs of the Kellogg-Recanati Executive MBA program have posted summaries of all of their classes at: http://www.kr04.net/ This is a handy reference site---a summary of what you learn in an executive MBA, all on one website.

General | Personal Productivity | Leadership and Management | Career Acceleration | Private Equity Investing | Public Markets Investing

For the lighter side of Wall Street, check out: http://www.dealbreaker.com/ "DealBreaker is an online business tabloid and Wall Street gossip blog. It seeks to cover the personalities and culture that shape the financial industry, offering original commentary, news and entertainment." AND http://www.thebullpenreport.net/ The Bullpen Report has much more of an insider's feel, given that it's written by investment bankers (Harvard MBAs) as opposed to journalists.

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'Early Matters': Creating Value through Operations at Portfolio Companies According to speakers at the 2006 Wharton Private Equity Conference, the most important element of operational performance is getting the right management team, which requires private equity owners to make a swift decision about whether to keep or let go of existing senior executives. After that, they say, private equity firms need to drive returns through management incentives, tight monitoring and forward-focused strategies. http://knowledge.wharton.upenn.edu/article/1457.cfm

General | Career Acceleration | Private Equity Investing

I hope that some of our readers will join me at TiECON East, June 15-17, in Boston, MA. With over 1,200 expected attendees, TiECON East plans to become the largest Global Innovation conference on the East Coast.

 The sponsoring organization is TiE, whose members receive roughly 5% of the venture capital investment in the United States.

Speakers include: -

 Howard Anderson, Founder Battery Ventures and The Yankee Group - Nikesh Arora, VP & GM Europe, Google - Clayton M. Christensen, Professor, Harvard Business School, Author, The Innovator's Dilemma - Rajat Gupta, Senior Partner Worldwide, McKinsey & Co. - Ray Kurzweil, Author & Pioneer in Artificial Intelligence - Venkat Ramaswamy, Ross School of Business at University of Michigan - Paul Sagan, CEO, Akamai - Mohanbir Sawhney, Professor, Kellogg School of Management - Howard H. Stevenson, Professor, Harvard Business School - Hatim Tyabji, Executive Chairman, Bytemobile Inc.

 I'll be participating in two panels, one on innovation in social software and online networks, and one on innovation in investment research.

The keynote speaker is Kofi Annan, Secretary-General of the United Nations (although I somehow doubt he will be talking about innovation, given that's not the UN's strength.) With prices starting at $269 for TiE Members and $100 for student members, the conference isn't expensive. For more information or to register, contact the TiE-Boston office at (781) 272-3875 or visit www.tieconeast.com .

Career Acceleration | Events | General | Leadership and Management | Personal Productivity | Private Equity Investing | Public Markets Investing | Securities Research | Social Software

In between various meetings in London last week, I dropped into the Third AQ Research Conference, to attend a panel on "Rewarding Corporate Access: What Does the Buyside Value?"

My notes follow:

Speakers:

Ralf Frank, Chair, German Association of Investment Professionals. Hosts 250 events / year where corporates present in one-on-ones. Moderator.

Alex Barr, Aberdeen Asset Management

Vikas Nath (spelling?), North South Capital

Jennifer Morris, Manager, Governance and Engagement, Hermes.

Largest pension fund in the UK. $63B sterling under mgmt. Looks after passively managed portfolio. Hermes well-known for corporate governance and engagement work. Frequently talks with underperforming portfolio companies.

The reason: 15 years ago, trustees of BT pension scheme argued: when you're a passive investor, you can't sell the underperforming companies, so you should work on fixing them. Clearly, access is important to them.

Unbundling doesn’t change corporate access that much, at least in the UK. It's rare mgmt. turns down their request for a meeting. In the UK, it's not necessary for them to go via a broker, so they wouldn't pay for that service. Overseas it's different---they're not as well known overseas, so an intermediary is more important.

Risk of double-counting/double-paying. One of the roles of a corporate broker (in the UK) is that a company pays the corporate broker to set up meetings for that company with investors. (This is not as common a model overseas.) Why should Hermes pay the corporate broker to set up meetings when they're ALSO being paid by the company to set up those meetings?

Ralf: How important is written research?

Morris: The demand for maintenance research will drop under unbundling. We're going to have to be able to tell the FSA why it's worth our clients' while to pay for these particular services----regurgitation. She's interested in longer-term perspective research, that draws on not-yet-financial issues. Issues on the horizon. More original research, drawing on issues investors haven't yet focused on. Interested in work that helps us engage with investors in a more meaningful way.

Alex Barr, Aberdeen Asset Management. Until recently a small buy-side organization. By recently buying Deutsche Asset Management London, but has become a much larger organization.

Charles Scott of Morgan Stanley talked about how alpha generation is most important issue. Hard for buy-side to ascribe value to research, when the sellers of research can't do it themselves. Research remains a small part of total execution cost for client.

Aberdeen is interested in investing in long-term. "Impatience is the enemy of outperformance." We have a duty to minimize total transaction costs.

Corporate access is the most central part of investment process.

Sell-side never drives investment decision. We meet mgmt. team of every company in which we invest. We use brokers to set up majority of corporate meetings, and post-Deutsche acquisition we're doing more of that. We rank market counterparties on their ability to provide corporate access.

We are paying for 3 things:

- execution

- corporate access

- Research (we use only a limited amount)

They generally don’t use broker analysts. Corporate access is embedded within total research cost.

Vikas Nath, North South Capital

We are one of the 2000 hedge fund startups in London, mostly managing $30-$500M with commission buckets of $2-$10M. Maybe 5-10 professionals.

Strategy: Global emerging markets equity long/short.

The regulatory burden is as heavy on them as a much larger firm, but they don’t have the same infrastructure to deal with that burden.

We have very limited time to deal with everything that we'd like to do.

We don't have time to do primary research.

When we call a company to set up a meeting, "Their answer begins with an F and the last word begins with an F" because they don't know us. (laughter)

Very relationship driven.

It's more convenient for them to pay for research + execution in one single fee.

Morris:

Outside of the UK, we do roadtrips, meet with foreign companies when they're visiting the UK.

Barr:

We are increasing the number of meetings we organize ourselves. Corporate access is the lion's share of the residual after commission.

Nath:

If we have to, we will pay for corporate access. A lot of the commission we pay is for structured products, so we don't know where bid-ask starts and ends/commission starts and ends.

We see 10-15 companies a week between 3 investment professionals.

Frank:

Could sell-side be out of business, because buy-side is making their own investment decisions, setting up their own meetings…what's left for them to do?

Barr:

Sell-side won't let that market go away very quickly. Vast amount of buy-side firms (excl. Aberdeen). who will be very heavy users of sell-side research. If sell-side vaporizes, we have a more imperfect market, which is good for us.

Morris:

Good sell-side research providers don't have to worry.

Every few days I get a call from yet another research provider who wants to talk about what they're offering.

Vikas:

I'd be happy if Aberdeen/Hermes set up more meetings themselves, because that gives me more one-on-one meetings, and fewer group meetings. (laughter)

Audience member:

What is the value-add you extract from company meeting.

Barr:

Corporate meeting is the single most important part of our investment process. Our process has worked very well for us, based on that foundation stone.

Mgmt. is not going to meet with every investor.

Morris:

Very often investors don't want to meet with company mgmt.---it's too much work. I usually talk with underperforming companies. I'm looking for reassurance.

Private Equity Investing | Public Markets Investing | Securities Research

Federico Colecchia, a network researcher at ATALAB, wrote to the SOCNET mailing list: "I am looking for recent/ongoing research on application of social network analysis technologies to analysis of stock values."

(He works as a researcher and R&D coordinator for development of visual intelligence software tools for multiple applications. His current focus is on drug discovery support.)

We traded emails about the use of social network analysis in the financial markets.

He wrote: "The works I know of are econophysical approaches to hierarchical characterization of stock price evolution that have been developed by Mantegna and Stanley. I think the primary references here are: R. Mantegna, H. E. Stanley, "An Introduction to Econophysics - Correlations and Complexity in Finance", Cambridge University Press, 2000 R. Mantegna (1999). "Hierarchical Structure in Financial Market", The European Physical Journal B 11:193-7."

 He also mentioned chiresearch (contact Jonathon Mote, Center for Innovation, University of Maryland) and Francis Narin's work on social network analysis-based methodologies for patent analysis, with a focus on identification of companies in which to invest. Does anyone have other suggestions on investors who are using social network analysis for investing?  Of course, Nitron Advisors is one indirect example.

Private Equity Investing | Public Markets Investing | Securities Research | Social Software

I am happy to report that we are relaunching the Nitron Advisors Circle of Experts Brain Food blog from a new home on the Web, http://www.CircleOfExperts.com/blog . Please tell your friends! From that link, you can subscribe with your favorite blog reader (Bloglines, Newsgator, etc.) or get every posting via email.

If you would like to change your subscription, unsubscribe, or make other changes, just visit http://lists.circleofexperts.com/mailman/listinfo/brain-food .

We will continue to write on Brain Food about career acceleration, business acceleration, consulting opportunities for industry experts, investment research, and online networks. We always welcome suggestions from people with good content.
We have several sister blogs and mailing lists we recommend:
http://www.nitronadvisors.com/mailing-list.html – two mailing lists for businesspeople interested in independent consulting assignments and new full-time jobs

http://www.circleofexperts.com/nyc : worthwhile business conferences, panels, and other events in the New York area

http://www.TheVirtualHandshake.com : how to sign new clients, raise capital, or even find your dream job with blogs, social network sites, and other online networks. You can also download there a complimentary copy of my new book, The Virtual Handshake: Opening Doors and Closing Deals Online.
To make sure that this email gets through to you, please add brain-food-blog-do-not-reply@circleofexperts.com to your address book or trusted sender list.Thanks for reading, and if you like this blog, please tell your friends!

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We just posted the draft of an article we're working on about how to raise capital with online networks. We're particularly interested in more success stories about institutional investors who have used online networks to raise capital successfully. We welcome feedback! Here's the article: Raising Capital with Online Networks

Social Software | Private Equity Investing | Public Markets Investing

I know that many of my readers are interested in earning finder's fees for bringing in deals to investors. A good overview article on your legal status if you're engaged in that activity is here: Are finders also brokers-dealers?

Private Equity Investing | Public Markets Investing

Here's a modeling tool to look at relationships between directors of major life science related companies. Go to www.recap.com and click on "power brokers of biotech", and you'll be taken to a real-time building screen. This is a free public version of similar analyses of power networks available at Capital IQ, LinkSV, and TheyRule.net. Via David Carpe on SOCNET .

General | Private Equity Investing

Tom O'Neill, managing director at Summit Private Capital Group, has launched a Buyout Blog for private equity, a practice that has caught on for venture capital. Via Private Equity Analyst (free registration) (6/01), via Broadgate Private Equity Smartbrief .

Private Equity Investing

From "Unbridled Audacity":

Hey VCs, next time you need to put the fear of god into a profligate portfolio-company CEO, take a lesson from hedge fund manager and Roman historian J. Carlo Cannell. Read this.

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I've been quiet on this blog for the last month, because we've been completing a major redesign.

I'd welcome feedback on the completely redesigned site, Teten.com, courtesy of Jason Coward at OpenGeek.

In separate news:

 Are you interested in reading a preview copy of my forthcoming book, The Virtual Handshake: Opening Doors and Closing Deals Online?

If you write for a major newspaper, magazine, or other media vehicle...or if you run a blog with a significant readership...or even if you would just like to write a note about the book in your in-house corporate newsletter...then I would be happy to send you a copy.

 Or perhaps you know someone in the media who would be interested in the book? I'd be very grateful for an introduction! This will be the first mass market book about how people can become dramatically more successful by leveraging online networks: find a new job, new clients, or new business partners.

 More technically, this is the first mass market book about “social software": blogs, social networking sites, relationship capital management software, and so on.

 The CEOs of many of the leading companies in this industry have already raved about the book, including the CEOs of Military.com, Best Software, Ecademy, Cvent, Contact Network, and Ryze...not to mention Craig Newmark (founder of craigslist), Bob Cialdini (bestselling author of Influence), and Ivan Misner (Business Network International), among many others. My coauthor Scott Allen and I have submitted the 99.9%-final version of the book to our publisher, the American Management Association, and are now seeking reviewers.

 If you’re interested, please mail your name, affiliation, title, and mailing address as soon as possible to TMaster(at)Teten.com . Please note that we have only limited supplies of the bound gallies.

Extensive information about the book, including a blog and resource center, are at TheVirtualHandshake.com. If appropriate, you may also be interested in joining our Amazon affiliate program. Thank you!

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