Circle of Experts - Brain Food Blog - Securities Research http://www.circleofexperts.com/blog/ newtelligence powered en-us David Teten Wed, 26 Mar 2008 14:47:51 GMT newtelligence dasBlog 2.0.7226.0 BLOG@circleofexperts.com BLOG@circleofexperts.com http://www.circleofexperts.com/blog/Trackback.html?guid=e20bfd1a-46e3-4dec-8161-6cfcc6e6181a http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=e20bfd1a-46e3-4dec-8161-6cfcc6e6181a David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=e20bfd1a-46e3-4dec-8161-6cfcc6e6181a http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=e20bfd1a-46e3-4dec-8161-6cfcc6e6181a Integrity Research Names Evalueserve Circle of Experts 2008 Top Pick as Asia/ Emerging Market Specialist Expert Network http://www.circleofexperts.com/blog/PermaLink.html?guid=e20bfd1a-46e3-4dec-8161-6cfcc6e6181a http://www.circleofexperts.com/blog/Integrity+Research+Names+Evalueserve+Circle+Of+Experts+2008+Top+Pick+As+Asia+Emerging+Market+Specialist+Expert+Network.html Wed, 26 Mar 2008 14:47:51 GMT <span style="FONT-SIZE: 19pt; FONT-FAMILY: Arial; mso-bidi-font-family: 'Times New Roman'"><span style="FONT-SIZE: 14pt; COLOR: black; FONT-FAMILY: Arial"> <p class=MsoNormal style="MARGIN: 0in 0in 0pt"> <font face="Times New Roman" size=3><?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />I'm happy to report that Integrity Research, the leading research firm that analyzes the investment research industry,&nbsp;has named&nbsp;<st1:Street w:st="on"> <st1:address w:st="on">Evalueserve Circle</st1:address> </st1:Street> of Experts the 2008 Top Pick as <st1:place w:st="on">Asia</st1:place> / Emerging Market Specialist Expert Network.&nbsp; We've only been part of Evalueserve for one year, so we're very happy to&nbsp;quickly see public recognition for the value that we've created.&nbsp; One of the rationales for the merger was the opportunity it gave Circle of Experts to quickly gain access to Evalueserve's emerging markets infrastructure, particularly in Asia.</font> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt"> <font face="Times New Roman" size=3></font>&nbsp; </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt"> <font face="Times New Roman" size=3>I have attached the full press release below.</font> </p> </span></span> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 1; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 19pt; FONT-FAMILY: Arial; mso-bidi-font-family: 'Times New Roman'"><font color=#000000></font></span></b>&nbsp; </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 1; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 19pt; FONT-FAMILY: Arial; mso-bidi-font-family: 'Times New Roman'"><font color=#000000><?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />Press Release <o:p></o:p> </font></span></b> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 1; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 14pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span></b> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 1; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 14pt; COLOR: black; FONT-FAMILY: Arial">Integrity Research Names Evalueserve Circle of Experts 2008 Top Pick as Asia/ Emerging Market Specialist Expert Network </span></b><span style="FONT-SIZE: 14pt; COLOR: black; FONT-FAMILY: Arial"> <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <st1:Street w:st="on"> <st1:address w:st="on"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">Evalueserve Circle</span> </st1:address> </st1:Street> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> of Experts has been selected as <b><i>2008 Top Pick for Boutique <st1:place w:st="on">Asia</st1:place> / Emerging Markets Expert Network Specialist </i></b>by Integrity Research, one of the most influential firms analyzing the investment research industry. This honor comes one year after the acquisition of the Circle of Experts, formerly known as Nitron Advisors, LLC, by Evalueserve, one of the largest global providers of offshore investment research support services. <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">The Circle of Experts is strong in all industries in the Emerging Markets. We leverage the intellectual capital that Evalueserve has developed in executing over 10,000 projects for over 1,100 clients, including 7 of the top 12 investment banks and 10 of the top 15 strategy consulting firms. <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">Evalueserve has dedicated operations centers in <st1:country-region w:st="on">India</st1:country-region> , <st1:country-region w:st="on">China</st1:country-region> , and <st1:place w:st="on"> <st1:country-region w:st="on">Chile</st1:country-region> </st1:place> and is well-positioned to service clients on these markets. Evalueserve is also setting up a new operations centre in <st1:place w:st="on"> <st1:country-region w:st="on">Romania</st1:country-region> </st1:place> in early 2008, in order to provide local coverage of European markets. <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">Integrity Research evaluated the twenty-five leading expert networks on six different metrics: their ability to source experts, the skill with which they match the appropriate experts with client requests, additional services such as market research or conferences, the firm’s key compliance principles to prevent the misuse of proprietary non-public information, customer satisfaction, and overall network usage. <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">Integrity surveyed hedge funds and long only investors to better understand how they use expert networks, which networks they prefer, and why. The survey helped Integrity Research evaluate each expert network, and also understand the dynamics of the expert network industry itself. You can read a summary of the survey at <u>http://secure.integrity-research.com/imageweb/executivesummary-expertnetworks.pdf </u>and purchase the entire study at </span><a href="http://www.integrity-research.com/retailReport"><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"><font color=#000000>http://www.integrity-research.com/retailReport</font></span></a><span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">.<o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 2; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 11.5pt; COLOR: black; FONT-FAMILY: Arial">About Evalueserve </span></b><span style="FONT-SIZE: 11.5pt; COLOR: black; FONT-FAMILY: Arial"> <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">Evalueserve provides custom research and analytics services to companies worldwide including Investment Research, Market Research, Business Research, Data &amp; Financial Analytics, Intellectual Property and Legal Process Services, plus access to a global network of domain experts through <st1:address w:st="on"> <st1:Street w:st="on">Evalueserve Circle</st1:Street> </st1:address> of Experts. The firm was founded by IBM and McKinsey alumni, and has completed over 12,000 client engagements. The firm currently has over 2,200 professionals located in research centres in <st1:country-region w:st="on">Chile</st1:country-region> , <st1:country-region w:st="on">India</st1:country-region> , <st1:country-region w:st="on">China</st1:country-region> and <st1:place w:st="on"> <st1:State w:st="on">New York</st1:State> </st1:place> . Evalueserve’s Client Executives are located in most major business and financial centres globally – from Silicon Valley to <st1:place w:st="on"> <st1:City w:st="on">Sydney</st1:City> </st1:place> . For more details, visit </span><u><span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial; mso-bidi-font-size: 12.0pt">www.evalueserve.com</span></u><span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">. <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 2; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 11.5pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span></b> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 2; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 11.5pt; COLOR: black; FONT-FAMILY: Arial">About <st1:address w:st="on"> <st1:Street w:st="on">Evalueserve Circle</st1:Street> </st1:address> of Experts </span></b><span style="FONT-SIZE: 11.5pt; COLOR: black; FONT-FAMILY: Arial"> <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <st1:address w:st="on"> <st1:Street w:st="on"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">Evalueserve Circle</span> </st1:Street> </st1:address> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial"> of Experts (www.CircleofExperts.com) provides its clients direct access to a global network of frontline industry experts across the <st1:country-region w:st="on">Americas</st1:country-region> , Asia, Europe, and the <st1:place w:st="on">Middle East</st1:place> . With its focus on emerging markets and dedicated operations centers, <st1:address w:st="on"> <st1:Street w:st="on">Evalueserve Circle</st1:Street> </st1:address> of Experts has an unparalleled panel in <st1:country-region w:st="on">India</st1:country-region> and <st1:place w:st="on"> <st1:country-region w:st="on">China</st1:country-region> </st1:place> . The Circle comprises executives, scientists, academics, consultants, and regulatory observers who can deliver fast and precise solutions to client issues through private telephone consultations, customized surveys, and in-person meetings. Evalueserve identifies leading experts across all major industries and presents them to our clients. <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 2; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 11.5pt; COLOR: black; FONT-FAMILY: Arial"> <o:p>&nbsp;</o:p> </span></b> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-outline-level: 2; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 11.5pt; COLOR: black; FONT-FAMILY: Arial">About Integrity Research </span></b><span style="FONT-SIZE: 11.5pt; COLOR: black; FONT-FAMILY: Arial"> <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; COLOR: black; FONT-FAMILY: Arial">Integrity Research Associates, LLC is an information and solutions provider specializing in the investment research industry. Integrity’s primary clients are institutional investors that use Integrity’s services to find new research providers and monitor existing ones. Integrity’s analysts cover over 1,600 research firms in the <st1:country-region w:st="on">U.S.</st1:country-region> , Europe and <st1:place w:st="on">Asia</st1:place> —research providers that no other source can offer. Integrity Research is the only firm which tracks the entire research industry, including nontraditional research, boutiques and research-related data, software and analytics. Integrity covers primary research firms and other alternative research firms which offer unique investment insights. <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <a href="mailto:"><font face="Times New Roman" color=#000000 size=3>mailto:</font></a><span style="FONT-SIZE: 11.5pt"> <o:p></o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <span style="FONT-SIZE: 8pt; FONT-FAMILY: Arial"> <o:p> <font color=#000000>&nbsp;</font> </o:p> </span> </p> <p class=MsoNormal style="PAGE-BREAK-BEFORE: always; MARGIN: 0in 0in 0pt; mso-outline-level: 2; mso-layout-grid-align: none"> <font color=#000000><b><span style="FONT-SIZE: 11.5pt; FONT-FAMILY: Arial">Disclaimer </span></b><span style="FONT-SIZE: 11.5pt; FONT-FAMILY: Arial"> <o:p></o:p> </span></font> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"><font color=#000000>Although the information contained in this article has been obtained from sources believed to be reliable, the author and Evalueserve disclaim all warranties as to the accuracy, completeness or adequacy of such information. Evalueserve shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. <o:p></o:p> </font></span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"> <o:p> <font color=#000000>&nbsp;</font> </o:p> </span></b> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <font color=#000000><b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial">EVSContact </span></b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"> <o:p></o:p> </span></font> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"> <o:p> <font color=#000000>&nbsp;</font> </o:p> </span></b> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <font color=#000000> <st1:place w:st="on"> <st1:country-region w:st="on"> <b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial">India</span></b> </st1:country-region> </st1:place> <b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial">: </span></b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"> <o:p></o:p> </span></font> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <span style="FONT-SIZE: 11.5pt"><font color=#000000><font face="Times New Roman">PRCC <o:p></o:p> </font></font></span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <span style="FONT-SIZE: 11.5pt"><font color=#000000><font face="Times New Roman">EVS Media Relations Tel: +91 124 4154000 pr(at)evalueserve.com <o:p></o:p> </font></font></span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"> <o:p> <font color=#000000>&nbsp;</font> </o:p> </span></b> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify; mso-layout-grid-align: none"> <font color=#000000> <st1:place w:st="on"> <st1:State w:st="on"> <b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial">New York</span></b> </st1:State> </st1:place> <b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial">: </span></b><span style="FONT-SIZE: 10pt; FONT-FAMILY: Arial"> <o:p></o:p> </span></font> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <span lang=NO-BOK style="FONT-SIZE: 11.5pt; mso-ansi-language: NO-BOK"><font color=#000000><font face="Times New Roman">David Teten <o:p></o:p> </font></font></span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <span lang=NO-BOK style="FONT-SIZE: 11.5pt; mso-ansi-language: NO-BOK"><font color=#000000><font face="Times New Roman">Tel: +1-212-682-5875 <o:p></o:p> </font></font></span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <span lang=NO-BOK style="FONT-SIZE: 11.5pt; mso-ansi-language: NO-BOK"><font color=#000000><font face="Times New Roman">dteten(at)CircleofExperts.com <o:p></o:p> </font></font></span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt; mso-layout-grid-align: none"> <span lang=NO-BOK style="FONT-SIZE: 11.5pt; mso-ansi-language: NO-BOK"> <o:p> <font face="Times New Roman" color=#000000>&nbsp;</font> </o:p> </span> </p> <p class=MsoNormal style="MARGIN: 0in 0in 0pt"> <span lang=NO-BOK style="mso-ansi-language: NO-BOK"> <o:p> <font face="Times New Roman" color=#000000 size=3>&nbsp;</font> </o:p> </span> </p> <p> </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=e20bfd1a-46e3-4dec-8161-6cfcc6e6181a" /> http://www.circleofexperts.com/blog/CommentView.html?guid=e20bfd1a-46e3-4dec-8161-6cfcc6e6181a Public Markets Investing Securities Research http://www.circleofexperts.com/blog/Trackback.html?guid=a042e9c7-0715-45a2-8653-fc0756daaeaa http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=a042e9c7-0715-45a2-8653-fc0756daaeaa David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=a042e9c7-0715-45a2-8653-fc0756daaeaa http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=a042e9c7-0715-45a2-8653-fc0756daaeaa 1

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 .

Web 2.0/Enterprise 2.0 in the Financial Services Industry http://www.circleofexperts.com/blog/PermaLink.html?guid=a042e9c7-0715-45a2-8653-fc0756daaeaa http://www.circleofexperts.com/blog/Web+20Enterprise+20+In+The+Financial+Services+Industry.html Mon, 22 Oct 2007 10:11:43 GMT <p> Matt Nelson of <a href="http://www.towergroup.com">Tower Group</a> was kind enough to give me permission to post his thoughtful <a href="http://www.teten.com/assets/docs/Web-2.0-Financial-Services-Nelson.pdf">slides</a> on "Web 2.0/Enterprise 2.0 in the Financial Services Industry", from the recent New York <a href="http://www.fmwonline.com/Conferences/2007/conf091707.htm">Financial Markets World conference </a>on "Web 2.0 and Enterprise 2.0 in Capital Markets."&nbsp; Christopher Rollyson and he briefly discussed his presentation <a href="http://www.globalhumancapital.org/archives/179-Web-2.0-and-Enterprise-2.0-in-Capital-Markets.html">here</a> .<br> </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=a042e9c7-0715-45a2-8653-fc0756daaeaa" /> http://www.circleofexperts.com/blog/CommentView.html?guid=a042e9c7-0715-45a2-8653-fc0756daaeaa Private Equity Investing Public Markets Investing Securities Research Social Software
http://www.circleofexperts.com/blog/Trackback.html?guid=003200c4-ffc3-463d-95cf-6daa977cd833 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=003200c4-ffc3-463d-95cf-6daa977cd833 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=003200c4-ffc3-463d-95cf-6daa977cd833 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=003200c4-ffc3-463d-95cf-6daa977cd833

A Bullish Slant from this Key Market

We recently listened to a conference call with a preeminent expert in the Indian gold market, and several of the points raised during the call merit the attention of commodity-oriented investors. Short term macro issues like the weakness of the dollar or global inflation are often cited as reasons for gold’s recent moves. We believe the Indian market is at least as important as these drivers in determining the near term future of this key commodity.

Hosted by Nitron Circle of Experts and BNY Jaywalk, the talk with the senior gold expert raised several critical points:

  • India is the largest national market for gold in the world, in terms of tonnage. Recent demand growth for gold in India has been nothing short of staggering, with Q207 demand at 370 tons, up over 90% from last year. In fact, incremental demand from India represents virtually 100% of marginal global gold demand in the second quarter of 2007. Understanding the economic and social variables for Indian gold demand is therefore critical to forecasting global gold prices.
  • Current market fundamentals for gold demand in India are robust. Strong economic growth and a rising currency certainly help, but it is equally important to understand the broader economic role gold plays in the country. Many deep-rooted beliefs as well as social customs serve to underpin a rise in gold demand as India’s economy continues to expand.
  • Two products drive gold demand in India – investment products (bullion/coin) and jewelry. The intersection of demand for these products is the wedding season in India as well as a series of important religious festivals. Both of these start in the back half of October and run through late January. Gold plays an important role in intergenerational wealth transfer in India, and weddings and religious festivals are key points when families often hand wealth down to the next generation.
  • Gold also plays an important role in India as a store of value, especially in rural farming communities. Its good price performance through recent global capital markets turmoil has served to further burnish this reputation. Banks even offer “mortgages” to buy gold, recognizing how important this investment is in Indian culture. Farmers will also use gold as a way to preserve wealth in anticipation of potentially lean times ahead.
  • Indian gold merchants are sitting on seasonally peak levels of inventory in anticipation of the wedding and religious festival seasons. Banks have large stocks of bullion and coins, for the same reason. Should the imminent rush of demand not materialize in the next few weeks, both the jewelry stores and banks will have to start to unload inventory. Mitigating some of this risk is the relatively weak production profile of gold mining enterprises. Existing mines supply only a small part of the country’s overall demand, face steep cost/ounce constraints, and have long start-up phases.

We therefore believe that gold investors need to watch the Indian gold market very carefully over the next few month. With gold near multi-year highs, there is little room for disappointment in this important market.

If you would like to arrange a conference call with this expert or otherwise gain insights into the commodity markets in India, please feel free to contact the Nitron Circle of Experts.

For more information on Nitron Circle of Experts please visit www.CircleofExperts.com.

Nitron Circle of Experts is a subsidiary of Evalueserve, a leading provider of Knowledge Process Outsourcing services – custom research, analytics, and intellectual property solutions . For more information on BNY, please visit: www.BNYJaywalk.com .

Indian Gold Market Overview http://www.circleofexperts.com/blog/PermaLink.html?guid=003200c4-ffc3-463d-95cf-6daa977cd833 http://www.circleofexperts.com/blog/Indian+Gold+Market+Overview.html Mon, 22 Oct 2007 09:55:19 GMT <p> <b>A Bullish Slant from this Key Market</b> </p> <p> We recently listened to a conference call with a preeminent expert in the Indian gold market, and several of the points raised during the call merit the attention of commodity-oriented investors. Short term macro issues like the weakness of the dollar or global inflation are often cited as reasons for gold&#8217;s recent moves. We believe the Indian market is at least as important as these drivers in determining the near term future of this key commodity. </p> <p> <b>Hosted by Nitron Circle of Experts and BNY Jaywalk, the talk with the senior gold expert raised several critical points:</b> </p> <ul> <li> <b>India is the largest national market for gold in the world, in terms of tonnage.</b> Recent demand growth for gold in India has been nothing short of staggering, with Q207 demand at 370 tons, up over 90% from last year. In fact, incremental demand from India represents virtually 100% of marginal global gold demand in the second quarter of 2007. Understanding the economic and social variables for Indian gold demand is therefore critical to forecasting global gold prices. </li> </ul> <ul> <li> <b>Current market fundamentals for gold demand in India are robust.</b> Strong economic growth and a rising currency certainly help, but it is equally important to understand the broader economic role gold plays in the country. Many deep-rooted beliefs as well as social customs serve to underpin a rise in gold demand as India&#8217;s economy continues to expand. </li> </ul> <ul> <li> <b>Two products drive gold demand in India &#8211; investment products (bullion/coin) and jewelry.</b> The intersection of demand for these products is the wedding season in India as well as a series of important religious festivals. Both of these start in the back half of October and run through late January. Gold plays an important role in intergenerational wealth transfer in India, and weddings and religious festivals are key points when families often hand wealth down to the next generation. </li> </ul> <ul> <li> <b>Gold also plays an important role in India as a store of value, especially in rural farming communities.</b> Its good price performance through recent global capital markets turmoil has served to further burnish this reputation. Banks even offer &#8220;mortgages&#8221; to buy gold, recognizing how important this investment is in Indian culture. Farmers will also use gold as a way to preserve wealth in anticipation of potentially lean times ahead. </li> </ul> <ul> <li> <b>Indian gold merchants are sitting on seasonally peak levels of inventory in anticipation of the wedding and religious festival seasons.</b> Banks have large stocks of bullion and coins, for the same reason. Should the imminent rush of demand not materialize in the next few weeks, both the jewelry stores and banks will have to start to unload inventory. Mitigating some of this risk is the relatively weak production profile of gold mining enterprises. Existing mines supply only a small part of the country&#8217;s overall demand, face steep cost/ounce constraints, and have long start-up phases. </li> </ul> <p> <b>We therefore believe that gold investors need to watch the Indian gold market very carefully over the next few month. With gold near multi-year highs, there is little room for disappointment in this important market. </b> </p> <p> <b> </b> </p> <p> If you would like to arrange a conference call with this expert or otherwise gain insights into the commodity markets in India, please feel free to contact the Nitron Circle of Experts. </p> <p> <b> </b> </p> <p> For more information on Nitron Circle of Experts please visit www.CircleofExperts.com. </p> <p> Nitron Circle of Experts is a subsidiary of Evalueserve, a leading provider of Knowledge Process Outsourcing services &#8211; custom research, analytics, and intellectual property solutions . For more information on BNY, please visit: <a href="https://www.bnyjaywalk.com/jaywalk/main.asp">www.BNYJaywalk.com</a> . </p> <p> <b> </b> </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=003200c4-ffc3-463d-95cf-6daa977cd833" /> http://www.circleofexperts.com/blog/CommentView.html?guid=003200c4-ffc3-463d-95cf-6daa977cd833 Public Markets Investing Securities Research
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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.

More on Web 2.0 and Enterprise 2.0 in Capital Markets http://www.circleofexperts.com/blog/PermaLink.html?guid=aa5aa287-9e5d-4254-926a-c58686851eb0 http://www.circleofexperts.com/blog/More+On+Web+20+And+Enterprise+20+In+Capital+Markets.html Wed, 10 Oct 2007 08:37:56 GMT <p> Christopher Rollyson took some very detailed <a href="http://www.globalhumancapital.org/archives/179-Web-2.0-and-Enterprise-2.0-in-Capital-Markets.html">notes</a> on the recent New York <a href="http://www.fmwonline.com/Conferences/2007/conf091707.htm">conference </a>on "Web 2.0 and Enterprise 2.0 in Capital Markets." They're worth reviewing. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=aa5aa287-9e5d-4254-926a-c58686851eb0" /> http://www.circleofexperts.com/blog/CommentView.html?guid=aa5aa287-9e5d-4254-926a-c58686851eb0 NextNY Private Equity Investing Public Markets Investing Securities Research
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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.

Web 2.0 / Enterprise 2.0 in the Capital Markets Industry http://www.circleofexperts.com/blog/PermaLink.html?guid=d4ea8d81-bd40-4bb8-9129-192b51affa1b http://www.circleofexperts.com/blog/Web+20+Enterprise+20+In+The+Capital+Markets+Industry.html Tue, 25 Sep 2007 05:18:22 GMT <p> </p> <p> I have attached below some notes from last Monday's Financial Markets World conference on <a href="http://www.fmwonline.com/Conferences/2007/conf091707.htm">Web 2.0 / Enterprise 2.0 in the Capital Markets Industry</a> , at Bayard's, New York.&nbsp;&nbsp; </p> <p> My own talk was on "<a href="http://www.teten.com/assets/docs/Source-Deals-Web-2.0-Teten.pdf">How to Source Deals with Web 2.0 Technologies</a>". 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 <a href="http://www.teten.com/assets/docs/Source-Deals-Web-2.0-Teten.pdf">here.</a>&nbsp; <br> </p> <p> Lauren Buckalew from our Shanghai office took notes, below: </p> <p> ------------------------------ </p> <p> A pilot study on awareness and use of Web 2.0 by <b>Canright Communications</b> and <a href="http://www.evalueserve.com/">Evalueserve</a> 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. </p> <p> The survey results—which were distributed at the <b>Financial Markets World</b> 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. </p> <p> 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. </p> <p> The most informative sessions to get the overview were <a href="http://www.google.com/url?sa=t&amp;ct=res&amp;cd=1&amp;url=http%3A%2F%2Fwww.towergroup.com%2Fresearch%2Fcontent%2Fanalyst_profile.jsp%3FauthorId%3D292&amp;ei=mNn3RvnsGI6kePXqmfQO&amp;usg=AFQjCNFFgSaorNnPWg59vdC_39RA5wEmpA&amp;sig2=sB79Do_mFOZMVLDnxSVKcw">Matt Nelson of <b>TowerGroup</b></a>’s opening remarks, and the last talk I attended, <a href="http://blogs.zdnet.com/Hinchcliffe/">Dion Hinchcliffe’s</a> ‘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. </p> <p> Other speeches and roundtables drilled down on specific topics, like Instant Messaging, Collaboration, Web 3.0, and David Teten’s talk on <a href="http://www.teten.com/assets/docs/Source-Deals-Web-2.0-Teten.pdf">using Web 2.0 to source deals</a> (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 <a href="http://www.pennyherscher.blogspot.com/">Penny Herscher</a> of <b>FirstRain</b> and her simple yet sharp insights. </p> <p> Stephen Leung, a Senior Manager at <b>BEA Systems</b>, 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. </p> <p> 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. </p> <p> In following the “Top 10” theme used by <b>Xignite</b> Chariman/CEO/Founder Stephane Dubois to kick-off the first roundtable, here’s my Top 10 Learnings from the event: </p> <p> 10) Web 2.0 technologies should fit into existing workflow and should be invisible to users. </p> <p> 9) The finance world’s secrecy and competitiveness inherently conflicts with Web 2.0’s nature of viral, self-correcting information sharing. </p> <p> 8) Longtail, mashups, fine-grained entitlement, folksonomies, meta data, geo-tagging and MetaWiki are good things… once you understand them. </p> <p> 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. </p> <p> 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. </p> <p> 5) Web 2.0 is not a technology or a step in development, but a social concept. </p> <p> 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. </p> <p> 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. </p> <p> 2) Each element of <a href="http://blog.iwr.co.uk/2006/07/enterprise_20_s.html">SLATES</a> (Search, Links, Authoring, Tagging, Extension, and Signals) is required for a Web 2.0 tool to be effective. </p> <p> 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. </p> <p> 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. </p> <p> </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=d4ea8d81-bd40-4bb8-9129-192b51affa1b" /> http://www.circleofexperts.com/blog/CommentView.html?guid=d4ea8d81-bd40-4bb8-9129-192b51affa1b NextNY Private Equity Investing Public Markets Investing Securities Research Social Software
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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.

How to Source Deals Using Web 2.0 Technologies http://www.circleofexperts.com/blog/PermaLink.html?guid=a5dd0b1c-b8ad-4d1c-a123-f41eb8219c6e http://www.circleofexperts.com/blog/How+To+Source+Deals+Using+Web+20+Technologies.html Sun, 19 Aug 2007 02:30:32 GMT <p> I'm looking forward to speaking at an upcoming conference, <a href="http://www.fmwonline.com/Conferences/2007/conf091707.htm">Web 2.0 / Enterprise 2.0 in the Capital Markets Industry</a>, on September 17 in New York. <br> </p> <p> <br> Liz Abraham of <a href="http://www.fmwonline.com/">Financial Markets World</a> 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 . <br> </p> <p> <br> My topic is <a href="http://teten.com/assets/docs/Raise-Funds.pdf">How to Source Deals Using Web 2.0 Technologies</a>, focused on how investment bankers, hedge funds, and private equity funds source investments.&nbsp; I also will be on a panel on <a href="http://www.teten.com/assets/docs/Teten-Web-3.0.pdf">Web 3.0</a>.&nbsp; Preliminary outlines of my presentations are at the preceding links.&nbsp; If any readers have suggestions on this general topic, I would welcome them. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=a5dd0b1c-b8ad-4d1c-a123-f41eb8219c6e" /> http://www.circleofexperts.com/blog/CommentView.html?guid=a5dd0b1c-b8ad-4d1c-a123-f41eb8219c6e Leadership and Management Private Equity Investing Public Markets Investing Securities Research
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HBS professor Mark Bradshaw reports

"The prediction was that all [Wall Street sell-side research] analysts would be more optimistic for firms that were issuing debt and equity securities than for firms that were either not engaging in such activity or were reducing their financing needs. An integral part of the forecasting function that analysts perform is assessing the need for external financing to fund operations. Thus, analysts are already intimately aware of what financing needs a company is likely to have. Accordingly, in periods leading up to a need to go to market for financing, we predict that all analysts would tend to increase the level of optimism embedded in their published research. This is exactly what we found."

"Even more interesting is that the optimism embedded in analysts' forecasts differs depending on whether the firm is issuing debt or equity securities. For firms that issue securities, their concern is the initial pricing of those securities. The pricing of equity is largely determined by the long-term performance of the firm, whereas the pricing of debt is limited on the upside, with investors standing to recapture principal and receive interest payments. Accordingly, we see that analysts' optimism varies with the type of security being issued. For debt, the optimism is restricted to near-term earnings forecasts (i.e., the next two years); for equity, the optimism is concentrated in longer-term forecasts (i.e., growth forecasts, target price forecasts) and stock recommendations."

In other words, not only is sell-side research impacted by the investment banking needs of the companies covered, but it's impacted in a very sophisticated and targeted way.  Interestingly, Bradshaw found that this was true regardless of whether or not the analyst's employer was current providing investment banking services to the client.  "The predictions in prior research were always that the affiliated analysts would be more optimistic than the unaffiliated analysts. This always seemed odd to me because unaffiliated analysts want to be affiliated so they can realize the benefits of associated investment banking fees and other ancillary services such as mergers and acquisition work, private placements, asset financings, and so on."

more ...


The Bias of Wall Street Analysts http://www.circleofexperts.com/blog/PermaLink.html?guid=9e38ab22-8776-4415-87c9-0e3111a621a9 http://www.circleofexperts.com/blog/The+Bias+Of+Wall+Street+Analysts.html Sun, 12 Aug 2007 20:01:29 GMT <p> </p> <p> HBS professor <a href="http://pine.hbs.edu/external/facPersonalShow.do?pid=24285">Mark Bradshaw</a> reports <a href="http://hbswk.hbs.edu/item/4430.html"> <br> </a> </p> <p> "The prediction was that all [Wall Street sell-side research] analysts would be more optimistic for firms that were issuing debt and equity securities than for firms that were either not engaging in such activity or were reducing their financing needs. An integral part of the forecasting function that analysts perform is assessing the need for external financing to fund operations. Thus, analysts are already intimately aware of what financing needs a company is likely to have. Accordingly, in periods leading up to a need to go to market for financing, we predict that all analysts would tend to increase the level of optimism embedded in their published research. This is exactly what we found." </p> <p> "Even more interesting is that the optimism embedded in analysts' forecasts differs depending on whether the firm is issuing debt or equity securities. For firms that issue securities, their concern is the initial pricing of those securities. The pricing of equity is largely determined by the long-term performance of the firm, whereas the pricing of debt is limited on the upside, with investors standing to recapture principal and receive interest payments. Accordingly, we see that analysts' optimism varies with the type of security being issued. For debt, the optimism is restricted to near-term earnings forecasts (i.e., the next two years); for equity, the optimism is concentrated in longer-term forecasts (i.e., growth forecasts, target price forecasts) and stock recommendations." </p> <p> In other words, not only is sell-side research impacted by the investment banking needs of the companies covered, but it's impacted in a very sophisticated and targeted way.&nbsp; Interestingly, Bradshaw found that this was true regardless of whether or not the analyst's employer was current providing investment banking services to the client.&nbsp; "The predictions in prior research were always that the affiliated analysts would be more optimistic than the unaffiliated analysts. This always seemed odd to me because unaffiliated analysts <em>want</em> to be affiliated so they can realize the benefits of associated investment banking fees and other ancillary services such as mergers and acquisition work, private placements, asset financings, and so on." </p> <p> <a href="http://hbswk.hbs.edu/item/4430.html">more ...</a> </p> <p> <br> </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=9e38ab22-8776-4415-87c9-0e3111a621a9" /> http://www.circleofexperts.com/blog/CommentView.html?guid=9e38ab22-8776-4415-87c9-0e3111a621a9 Public Markets Investing Securities Research
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Robert Peck of Bear Stearns recently presented on the theme "Yahoo should buy Facebook", with a rough valuation of Facebook. I have to admit my skepticism of this argument. Yahoo has a history of not taking advantage of its acquisitions (Broadcast.com…).

Far cheaper than buying Facebook would be to provide a systematically integrated user experience across all of those different brands. Most noteably, Yahoo owns Yahoo Groups, which to this day has one of the most active user bases of any online community. There are roughly 6 million Yahoo groups, with an average of perhaps 10 users each, and many of those users (including me) are not impressed with the quality of their current user experience. (The 6 million figure comes from Jeff Weiner of Yahoo, but the figure of 10 users each is only a rough estimate.)

Yahoo already has tremendous reach and many of the most noteworthy brands in the Web 2.0 space (Flickr, Delicious, etc.). Integrating all of these brands is a mammoth missed opportunity.

Yahoo Should Not Buy Facebook http://www.circleofexperts.com/blog/PermaLink.html?guid=e96ddde0-8ca0-4b0f-b980-d9d614497863 http://www.circleofexperts.com/blog/Yahoo+Should+Not+Buy+Facebook.html Tue, 07 Aug 2007 19:14:31 GMT <p> <p> <a href="http://www.virtualworlds2007.com/speakers/robertpeck.html">Robert Peck of Bear Stearns</a> recently presented on the theme &quot;<a href="http://www.techcrunch.com/2007/08/03/bear-stearns-yahoo-must-form-a-social-networking-strategy/">Yahoo should buy Facebook</a>&quot;, with a rough valuation of Facebook. I have to admit my skepticism of this argument. Yahoo has a history of not taking advantage of its acquisitions (Broadcast.com&#8230;). </p> <p> Far cheaper than buying Facebook would be to provide a systematically integrated user experience across all of those different brands. Most noteably, Yahoo owns <a href="http://en.wikipedia.org/wiki/Yahoo!_Groups">Yahoo Groups</a>, which to this day has one of the most active user bases of any online community. There are roughly 6 million Yahoo groups, with an average of perhaps 10 users each, and many of those users (including me) are not impressed with the quality of their current user experience. (The 6 million figure comes from Jeff Weiner of Yahoo, but the figure of 10 users each is only a rough estimate.) </p> <p> Yahoo already has tremendous reach and many of the most noteworthy brands in the Web 2.0 space (Flickr, Delicious, etc.). Integrating all of these brands is a mammoth missed opportunity. </p> > <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=e96ddde0-8ca0-4b0f-b980-d9d614497863" /> http://www.circleofexperts.com/blog/CommentView.html?guid=e96ddde0-8ca0-4b0f-b980-d9d614497863 Public Markets Investing Securities Research Social Software
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I enjoyed tonight's talk by Peter Thiel at NYC Junto, on "How New Technologies Thwart Government and Promote Freedom". Junto is a libertarian-focused discussion group organized by Victor Niederhoffer. I've been following Peter's writing for a while, since we overlap directly in our interests in investing and in online networks. Peter is President of Clarium Capital Management, an investor in both LinkedIn and Facebook, and was co-founder and former CEO of Paypal.

Peter started with two questions:

1) Let's assume libertarian view is correct. Why aren't more people libertarian?

2) What do we do about it? How do we make the world more libertarian?

Answers to question 1

- maybe libertarianism is not in peoples' interest

- lack of education

- [Cf. Bryan Caplan's book, The Myth of The Rational Voter]

Answers to question 2

When Peter was an undergrad, he might say:

- Education

- Go door to door

- Convince people to vote for candidates

But as he got older, he saw this is very hard to do.

(highlight of the evening: Victor Niederhoffer's toddler son wanders around Peter's legs at this point)

An IQ test for libertarians: ask them how optimistic they are. The more pessimistic they are, the smarter they are.

One solution: move control of money from the government to individuals. But you cant do this via plebiscite. If there was a form of money that government couldn’t measure or track, you'd have a powerful alternative. This insight was genesis of Paypal in late 1990s.

In mid 90s, several companies were creating alternative currencies: Cybercash, Digicash, etc. All of the initial attempts were going out of business. Money has a network-like aspect. How do you create a new currency when no one else is using it?

All these efforts had run aground against this rock. So Paypal started by leveraging against existing systems: credit cards, checks. Send money to anyone with an email address. Started with 24 employees at Paypal. Preloaded accounts with $10. Started to spread. We grew at 5-7% compounded daily.

Einstein, "Compound interest is so miraculous it could only be created by G-d".

Initial theory was very idealistic. In reality we ran up against many obstacles, the first of which were customers. Massive amounts of emails/customer service inquiries.

Spring/summer 2000: discovered bad people are out there. Whole wave of fraud, including Russian mobsters, tried to exploit Paypal. Someone threatened Peter's mother unless PayPal unfroze his account. Then that person ended up shot dead.

Found dystopian website in Former Soviet Union: "Carders World". A carder is someone who steals financial information on people. This was a marketplace for personal financial information. They had a manifesto saying that they were going to take down the capitalist system. Paypal information was there.

2001 period: next obstacle was government. Initial Paypal strategy was to ignore government regulations—'we are not a bank'; ' none of these laws apply to us'. If we rolled this out quickly enough, the government couldn't stop us. "If you have a world where everyone is a criminal, you have to change the law."

Visa/Mastercard tried to come up with rules to prohibit Paypal from using their service. Government was even slower. Radical technological change must be fast.

In 2001/02, when company went public, things really hit the wall. The person investigating their S-1 thought that his job was to stop companies from going public. "He was demoted in government, which is a really extraordinary thing to happen."

Businessweek article said that state of Louisiana hadn't quite signed off on this. SEC investigator told Paypal management that state of Louisiana was going to shut this down. So in middle of roadshow, Peter had to track down government regulators in Louisana and convince them that Louisana did not want to get reputation as a particularly backward place. "So within 2 days, we managed to get that stopped. At the time we had 100,000 Louisana users."

"We are now in 100 countries. 3rd largest payment brand after Visa/Mastercard in the world. "

How successful were we? Paypal currency is still denominated in national currencies. If you only have one form of currency, you're beholden to the issuer of that currency. Our initial vision inspired in part by Argentinean economic turmoil. If you can force competition between governments, you'll have stabler currencies.

Early 1980s: high inflation rates all over the world. Since then, it's gone down almost everywhere. Forms and symbols can persist well after the substance is gone, e.g., Queen's face is still on UK currency. Technology has been a very powerful force for decentralizing things.

1960s Time magazine cover: picture of 1 big computer that could run the world. Cf. Hal 2001. Computers as a force for centralization is a classic image. In the 90s, power shifted to individuals.

Famous early example: Soros distributing fax machines throughout Eastern bloc.

If everyone becomes a currency dealer thru Paypal, it changes the world.

So much has changed. For example in 1971: it was illegal to own gold and other currencies in the US. 1971 Treasury Secretary said, "It's our money---we can print as much as we want and it's the rest of the world's problem". You can't imagine Hank Paulson saying something similar today.

Power is shifting ineluctably away. Will technology continue to be a force for decentralization?

Why did 1960s vision of centralized computer not happen?

Peoples' ability to process information is flat, but the amount of information has gone up dramatically. So the only solution is decentralization. This is also why Moscow can't set the price of potatoes in Vladivostock.

You may be able to approximate information processing to a problem solveable in polynomial time---and then you have AI, and the 1960s vision of a centralized computer processing everything.

By 2050, we could have thousands of different countries. We have 10-20 years to push as hard and far as we can in direction of more liberty.

Q: How do you prevent Paypal from being used as electronic hawalla---form of terrorist financing?

A: We have protections in place---abide by Patriot Act.

2002: first year number of printed checks in US went down.

Q: question about Second Life and inflation

Q: question about goldmoney.com

A: The problem with gold is that when you really need it, it's not there. In 1933 the government confiscated all the gold bullion in the US.

Q; How do you promote libertarianism?

A: When I was young I tried to reduce the demand side (demand for regulation), but then I saw it was much too hard. So now I focus on the supply side. If I expand the supply side (e.g., more options for currencies), I reduce the amount of government in the system.

I want to promote change without being obliged to go through an election or plebiscite.

Governments are losing power to inflate because of technology. The risks are now tilted to deflation, not inflation. A deflationary environment is hard to invest in, because you can't just lever up and pay things off in cheaper dollars. Private equity and real estate are bad ideas in a deflationary environment. Donald Trump's argument is that you should be short dollars by going long real estate, is disastrous.

Q: How does Facebook promote libertarianism?

A: Facebook will be the dominant next media company . Since the old media companies are non-libertarian, this in itself is good.

Hedge funds are a way to bet against stupidity of governments.

Q: Could you comment on US visa policies and their impact on competitiveness.

He commented that once a tipping point happens, it's impossible to go back. Once the camel's back is broken, it can't be healed. Right now the marginal tax rate in NY is ~50%. In London it's 0%. So it's compelling for a hedge fund to set up shop in London, not NY.

There's a definite shifting of centers of quality overseas. It's happening faster in finance than in technology, but it is happening. (Audience member mentioned that Microsoft is setting up research centers in Canada and elsewhere specifically because they cant bring the researchers they hire into the US.)

Peter Thiel, Paypal co-founder, on How New Technologies Thwart Government and Promote Freedom http://www.circleofexperts.com/blog/PermaLink.html?guid=80d98156-10db-46fd-b84e-1347d792c2b0 http://www.circleofexperts.com/blog/Peter+Thiel+Paypal+Cofounder+On+How+New+Technologies+Thwart+Government+And+Promote+Freedom.html Fri, 03 Aug 2007 16:55:01 GMT <p> I enjoyed tonight's talk by <a href="http://www.thefoundersfund.com/team_bios.html">Peter Thiel</a> at <a href="http://www.nycjunto.com/">NYC Junto</a>, on &quot;How New Technologies Thwart Government and Promote Freedom&quot;. Junto is a libertarian-focused discussion group organized by <a href="http://www.dailyspeculations.com/">Victor Niederhoffer</a>. I've been following Peter's writing for a while, since we overlap directly in our interests in investing and in online networks. Peter is President of Clarium Capital Management, an investor in both <a href="http://www.linkedin.com/">LinkedIn</a> and <a href="http://www.facebook.com/">Facebook</a>, and was co-founder and former CEO of <a href="http://www.paypal.com/">Paypal</a>. </p> <p> Peter started with two questions: </p> <p> 1) Let's assume libertarian view is correct. Why aren't more people libertarian? </p> <p> 2) What do we do about it? How do we make the world more libertarian? </p> <p> <b><u>Answers to question 1</u></b> </p> <p> - maybe libertarianism is not in peoples' interest </p> <p> - lack of education </p> <p> - [Cf. Bryan Caplan's book, <a href="http://www.cato-unbound.org/2006/11/06/bryan-caplan/the-myth-of-the-rational-voter/">The Myth of The Rational Voter</a>] </p> <p> <b><u>Answers to question 2</u></b> </p> <p> When Peter was an undergrad, he might say: </p> <p> - Education </p> <p> - Go door to door </p> <p> - Convince people to vote for candidates </p> <p> But as he got older, he saw this is very hard to do. </p> <p> (highlight of the evening: Victor Niederhoffer's toddler son wanders around Peter's legs at this point) </p> <p> An IQ test for libertarians: ask them how optimistic they are. The more pessimistic they are, the smarter they are. </p> <p> One solution: move control of money from the government to individuals. But you cant do this via plebiscite. If there was a form of money that government couldn&#8217;t measure or track, you'd have a powerful alternative. This insight was genesis of Paypal in late 1990s. </p> <p> In mid 90s, several companies were creating alternative currencies: Cybercash, Digicash, etc. All of the initial attempts were going out of business. Money has a network-like aspect. How do you create a new currency when no one else is using it? </p> <p> All these efforts had run aground against this rock. So Paypal started by leveraging against existing systems: credit cards, checks. Send money to anyone with an email address. Started with 24 employees at Paypal. Preloaded accounts with $10. Started to spread. We grew at 5-7% compounded <u>daily</u>. </p> <p> Einstein, &quot;Compound interest is so miraculous it could only be created by G-d&quot;. </p> <p> Initial theory was very idealistic. In reality we ran up against many obstacles, the first of which were customers. Massive amounts of emails/customer service inquiries. </p> <p> Spring/summer 2000: discovered bad people are out there. Whole wave of fraud, including Russian mobsters, tried to exploit Paypal. Someone threatened Peter's mother unless PayPal unfroze his account. Then that person ended up shot dead. </p> <p> Found dystopian website in Former Soviet Union: &quot;Carders World&quot;. A carder is someone who steals financial information on people. This was a marketplace for personal financial information. They had a manifesto saying that they were going to take down the capitalist system. Paypal information was there. </p> <p> 2001 period: next obstacle was government. Initial Paypal strategy was to ignore government regulations&#8212;'we are not a bank'; ' none of these laws apply to us'. If we rolled this out quickly enough, the government couldn't stop us. &quot;If you have a world where everyone is a criminal, you have to change the law.&quot; </p> <p> Visa/Mastercard tried to come up with rules to prohibit Paypal from using their service. Government was even slower. <u>Radical technological change must be fast.</u> </p> <p> In 2001/02, when company went public, things really hit the wall. The person investigating their S-1 thought that his job was to stop companies from going public. &quot;He was demoted in government, which is a really extraordinary thing to happen.&quot; </p> <p> Businessweek article said that state of Louisiana hadn't quite signed off on this. SEC investigator told Paypal management that state of Louisiana was going to shut this down. So in middle of roadshow, Peter had to track down government regulators in Louisana and convince them that Louisana did not want to get reputation as a particularly backward place. &quot;So within 2 days, we managed to get that stopped. At the time we had 100,000 Louisana users.&quot; </p> <p> &quot;We are now in 100 countries. 3<sup>rd</sup> largest payment brand after Visa/Mastercard in the world. &quot; </p> <p> How successful were we? Paypal currency is still denominated in national currencies. If you only have one form of currency, you're beholden to the issuer of that currency. Our initial vision inspired in part by Argentinean economic turmoil. If you can force competition between governments, you'll have stabler currencies. </p> <p> Early 1980s: high inflation rates all over the world. Since then, it's gone down almost everywhere. Forms and symbols can persist well after the substance is gone, e.g., Queen's face is still on UK currency. Technology has been a very powerful force for decentralizing things. </p> <p> 1960s Time magazine cover: picture of 1 big computer that could run the world. Cf. Hal 2001. Computers as a force for centralization is a classic image. In the 90s, power shifted to individuals. </p> <p> Famous early example: Soros distributing fax machines throughout Eastern bloc. </p> <p> If everyone becomes a currency dealer thru Paypal, it changes the world. </p> <p> So much has changed. For example in 1971: it was illegal to own gold and other currencies in the US. 1971 Treasury Secretary said, &quot;It's our money---we can print as much as we want and it's the rest of the world's problem&quot;. You can't imagine Hank Paulson saying something similar today. </p> <p> Power is shifting ineluctably away. Will technology continue to be a force for decentralization? </p> <p> Why did 1960s vision of centralized computer not happen? </p> <p> Peoples' ability to process information is flat, but the amount of information has gone up dramatically. So the only solution is decentralization. This is also why Moscow can't set the price of potatoes in Vladivostock. </p> <p> You may be able to approximate information processing to a problem solveable in polynomial time---and then you have AI, and the 1960s vision of a centralized computer processing everything. </p> <p> By 2050, we could have thousands of different countries. We have 10-20 years to push as hard and far as we can in direction of more liberty. </p> <p> Q: How do you prevent Paypal from being used as electronic hawalla---form of terrorist financing? </p> <p> A: We have protections in place---abide by Patriot Act. </p> <p> 2002: first year number of printed checks in US went down. </p> <p> Q: question about Second Life and inflation </p> <p> Q: question about <a href="http://www.goldmoney.com/">goldmoney.com</a> </p> <p> A: The problem with gold is that when you really need it, it's not there. In 1933 the government confiscated all the gold bullion in the US. </p> <p> Q; How do you promote libertarianism? </p> <p> A: When I was young I tried to reduce the demand side (demand for regulation), but then I saw it was much too hard. So now I focus on the supply side. If I expand the supply side (e.g., more options for currencies), I reduce the amount of government in the system. </p> <p> I want to promote change without being obliged to go through an election or plebiscite. </p> <p> Governments are losing power to inflate because of technology. The risks are now tilted to deflation, not inflation. A deflationary environment is hard to invest in, because you can't just lever up and pay things off in cheaper dollars. Private equity and real estate are bad ideas in a deflationary environment. Donald Trump's argument is that you should be short dollars by going long real estate, is disastrous. </p> <p> Q: How does Facebook promote libertarianism? </p> <p> A: Facebook will be the dominant next media company . Since the old media companies are non-libertarian, this in itself is good. </p> <p> Hedge funds are a way to bet against stupidity of governments. </p> <p> Q: Could you comment on US visa policies and their impact on competitiveness. </p> <p> He commented that once a tipping point happens, it's impossible to go back. Once the camel's back is broken, it can't be healed. Right now the marginal tax rate in NY is ~50%. In London it's 0%. So it's compelling for a hedge fund to set up shop in London, not NY. </p> <p> There's a definite shifting of centers of quality overseas. It's happening faster in finance than in technology, but it is happening. (Audience member mentioned that Microsoft is setting up research centers in Canada and elsewhere specifically because they cant bring the researchers they hire into the US.) </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=80d98156-10db-46fd-b84e-1347d792c2b0" /> http://www.circleofexperts.com/blog/CommentView.html?guid=80d98156-10db-46fd-b84e-1347d792c2b0 Events Leadership and Management Public Markets Investing Securities Research Social Software
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The folks at Landslide have figured out a great marketing strategy: If you view a demo of their "sales workstyle management" system, they'll give you a free copy of The Virtual Handshake--Opening Doors and Closing Deals Online.

Alex Salkever of Inc. wrote in Turning Sales Into Science that Landslide "gives sales staffers what they need, when they need it, to close a deal."  In other words, Landslide provides salespeople more infrastructure, so that they can focus more on selling and less on all of the other activities that distract them from their main job.

Link: Watch a Landslide demo, get a copy of The Virtual Handshake

Free copies of The Virtual Handshake http://www.circleofexperts.com/blog/PermaLink.html?guid=c7f2cd21-b757-40ba-b90c-86f227f3aed2 http://www.circleofexperts.com/blog/Free+Copies+Of+The+Virtual+Handshake.html Fri, 04 May 2007 02:56:56 GMT <p> The folks at <a href="http://www.Landslide.com">Landslide</a>&nbsp;have figured out a great marketing strategy: If you view a demo of their "sales workstyle management" system, they'll give you a free copy of <a href="http://www.TheVirtualHandshake.com">The Virtual Handshake--Opening Doors and Closing Deals Online</a>. </p> <p> Alex Salkever of Inc. wrote in <a href="http://www.inc.com/magazine/20061201/sales-into-science.html">Turning</a> Sales Into Science that Landslide "gives sales staffers what they need, when they need it, to close a deal."&nbsp; In other words, Landslide provides salespeople more infrastructure, so that they can focus more on selling and less on all of the other activities that distract them from their main job. </p> <p> Link: <a href="http://www.landslide.com/demo?campaign=dteten">Watch</a> a Landslide demo, get a copy of The Virtual Handshake </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=c7f2cd21-b757-40ba-b90c-86f227f3aed2" /> http://www.circleofexperts.com/blog/CommentView.html?guid=c7f2cd21-b757-40ba-b90c-86f227f3aed2 Career Acceleration General Leadership and Management Personal Productivity Public Markets Investing Securities Research Social Software
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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)

A marketplace for research http://www.circleofexperts.com/blog/PermaLink.html?guid=405 http://www.circleofexperts.com/blog/A+Marketplace+For+Research.html Tue, 13 Mar 2007 22:06:35 GMT <p> The team from <a href="http://www.aqresearch.com">AQ Research</a> (at whose conference I'll be speaking tomorrow in London) has written a <a href="http://integrityresearch.blogdrive.com/archive/760.html">blog post</a> about an idea I've chewed on for a while: ‘A Marketplace for Research’. </p> <p> 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.&nbsp; Among those inefficiencies: </p> <p> • 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 </p> <p> • Money managers pay a lot for a product, research, whose exact value they don't know.&nbsp; &nbsp; </p> <p> • Research analysts, who are supposed to be experts in valuation, don't know exactly how to price their own product. </p> <p> &nbsp; </p> <p> 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. </p> <p> 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.&nbsp;&nbsp;These sites are hoping to benefit from the <a href="http://en.wikipedia.org/wiki/The Wisdom of Crowds">wisdom of crowds</a> effect, as does the <a href="http://www.circleofexperts.com">Circle of Experts</a>. </p> <p> • <a href="http://seekingalpha.com">SeekingAlpha.com</a>, 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. </p> <p> • <a href="http://marketocracy.com/">Marketocracy </a>, 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. </p> <p> • <a href="http://feelingbullish.com/">Feeling Bullish</a>, <a href="http://www.bullpoo.com/">BullPoo</a>, <a href="http://www.digstock.com/">Digstock</a>, and <a href="http://www.techcrunch.com/2006/08/21/socialpicks-enables-collaborative-investment-research/ ">SocialPicks </a>- all of which are discussion sites in which your public discussion of investment ideas is systematically ranked. The SocialPicks site is currently down. </p> <p> •&nbsp;<a href="http://www.stocktickr.com/">Stocktickr</a> 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 <a href="http://mint.com">Mint</a>, which has executed this idea well.) </p> <p> • <a href="http://www.bivio.com">Bivio</a>, a site which helps individual investors form investment clubs. They provide accounting and fund management services, including investment partnership accounting and tax software. </p> <p> • <a href="http://caps.fool.com/">Motley Fool CAPS</a>, a Motley Fool service that lets users place predictions on a publicly listed stock’s performance vs. the S&amp;P 500 over a given time frame ( See Techcrunch's <a href="http://www.techcrunch.com/2006/10/05/caps-takes-wisdom-of-the-few-to-stock-picking/">writeup</a>) </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=405" /> http://www.circleofexperts.com/blog/CommentView.html?guid=405 General Private Equity Investing Public Markets Investing Securities Research
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I enjoyed participating in AQ Research's recent conference on "The Future of Research", last December 5.

I finally had a chance to edit and post my notes on the panel on Research Pricing.

Speakers:

Lisa Shalett, Chairman and CEO,

Sanford C Bernstein Paul Spillane, CEO, Soleil Securities

Chair: Albert Alonzo, AQ Research Lisa Shalett:

 If research is really a discrete model, you could say that should have a fixed price.

 But I believe research is actually really an advisory service, an interaction, part of a broader process----part of the mosaic of ideas.

 No money manager on the planet will say he has just one source for investing. Research should be priced in direct proportion to the value creation or value destruction.

 By comparison, money management industry prices its service in proportion to its own value creation or value destruction. Unbundling and transparency are two separate concepts.

 The idea that research pricing should be tied to volume or fixed is another concept.

 I believe strongly that research should be tied to volume.

 Paul Spillane: For us to be successful, we have to determine a fee. We are the only part of the finance business that provides product for free.

 I don’t want us to be paid based on our stock-picking performance. 1-2 fund managers, and a batch of hedge funds, have given us a price schedule: you bring in a company manager, I'll pay X. you provide an expert, I'll pay Y. you set up road show for me, I'll pay Z.

We're trying to ascertain value of what we provide. Our analysts only get paid if customers say, "Pay them". It's all client-directed.

 Alonzo: Independents have always been transparent, but sell-side have dragged their feet in complying with menu pricing. Shalett: Trading commissions should be going down slowly.

 There's no reason why they should be flat or rising. The wool is being pulled over the money management industry's eyes.

Marginal cost of executing /clearing a trade is close to zero, and Sanford Bernstein is not even a scale player in this business.

If you want to save money on research & trading, start there first! Spillane: If you're head of research at a bulge-bracket bank, you focus your effort on minimizing outliers, so no one can sue you.

 You're not focused on creating alpha. Money management industry is afraid to say what they're paying for research. If a money manager says it's paying 2 cents for research someone can sue. But if you say you're spending it on execution, it's harder to complain about it.

Look at Jefferies settlement. Shalett: Broader public policy question: what does research provide?

 Buy side says they're paying for liquidity, for there to be a dialogue. Trading cost curve has gone down 6 pct. annually since 1975, to 3.5 cents now.

 The regulators want you to be democratic, give access to everyone.

Pricing mechanism should be scale neutral, to not overly advantage the largest money managers. Alonzo: Why do indies still get paid so much less than sell-side?

Spillane: Because we let them! We don't know what we should be charging. We don't have enough senior-level relationships. We don't know if we're being overpaid or underpaid.

 You have to be willing to walk away from underpayment. Shalett: We don't put a formal price on our services. But we use the concept of fair share.

We use polls, Greenwich polls. We're paid 1/3 of what we should be paid, if you compare our ranking in polls with the total payments to research providers.

That hasn’t changed in 13 years. The reason is that the sell-side has a lock on being systematically overpaid.

 Spillane: Lisa, you have the power to change this. Just shut them off. Shalett: We'd shut them off if Thomson would implement the change to make it easier to shut people off.

(laughter) Questions: What would it take for you to get out of execution?

Shalett: It will only happen if we can be confident that we'll get paid 3x what we're paid now. In Europe, implementing CSAs as follows: 8 bps for execution, 7 bps for research, plus 2 bps for proprietary research when paying sell-sides. These sell-side firms are holding the indies' money for 90 days, paying no interest.

If there were a DTC, a Switzerland, for these commissions, I'd join it and exit trading. But I don't believe in what's being implemented today.

 Alonzo: CSA gives firms freedom to use traditional payment mechanism. Is now the right time to push on pricing? Shalett: Depends partly on extent to which funds are generating substantial alpha.

 Hedge funds are willing to pay unlimited amount for good research. Spillane: How do you get a return on capital that you can't measure? If someone could provide a utility function for research, big banks would sign up and then focus on prop trading.

 We're entering dangerous part of cycle, because we've had good returns for several years.

This is first year in 10-15 yrs when more hedge funds closed than opened.

 So it's a tough time to talk about pricing. Shalett: Big banks are generating 30% ROE.

 They're good businesses. Mayhew: Will we see a more level approach between pricing of sell-side and indie research?

Spillane: We won't move to unbundling until we're forced to. We won't subject ourselves to the soft dollar pool, which is only 7-15% of giant pool of commissions ($14-$15B in US).

 I don’t want to be in the kiddie pool. Barry Hurewitz (Morgan Stanley): We have 500 analysts .

 Average buy-side person with a $50M commission pool has 11 buy-side analyst. Lisa might have highest per-hour price on the Street, today.

 I don’t see why you can't just price your services explicitly; that's what we do. Shalett responds: From 75 to 2000 (decimalization), trading was a commodity, because market was very concentrated.

 Most volume going thru NYSE specialists, whether it came from MS or GS, or it was OTC (fulfilled by market-maker). Post-2000, you had fragmentation of liquidity, which meant differential execution quality.

 Trading has become a more differentiated product.

 Capital commitment actually mattered. Now, pendulum is swinging back.

 Technology is reconcentrating liquidity. Buy-side can trade directly with the market.

Vast majority of executions are commodities, or will be in next 2 years.

 So prices should be going down. It doesn't make sense that prices go up.

CSAs favor some players over others. Macroeconomics don't stand up to scrutiny, and industrial behavior is being perverted as a result.

 Spillane: Morgan Stanley can't price by the hour, because there are too many constraints.

Customers aren't willing to set a price.

 There are way too many internal pressures calling your #1 ranked analyst to come to a meeting, go to a conference, etc., to say simply that he bills at $3000/hour.

Research Pricing http://www.circleofexperts.com/blog/PermaLink.html?guid=391 http://www.circleofexperts.com/blog/Research+Pricing.html Tue, 02 Jan 2007 17:39:30 GMT <p> I enjoyed participating in <a href="http://www.aqresearch.com">AQ Research</a>'s recent conference on "The Future of Research", last December 5. </p> <p> I finally had a chance to edit and post my notes on the panel on Research Pricing. </p> <p> Speakers: </p> <p> Lisa Shalett, Chairman and CEO, </p> <p> Sanford C Bernstein Paul Spillane, CEO, Soleil Securities </p> <p> Chair: Albert Alonzo, AQ Research Lisa Shalett: </p> <p> &nbsp;If research is really a discrete model, you could say that should have a fixed price. </p> <p> &nbsp;But I believe research is actually really an advisory service, an interaction, part of a broader process----part of the mosaic of ideas. </p> <p> &nbsp;No money manager on the planet will say he has just one source for investing. Research should be priced in direct proportion to the value creation or value destruction. </p> <p> &nbsp;By comparison, money management industry prices its service in proportion to its own value creation or value destruction. Unbundling and transparency are two separate concepts. </p> <p> &nbsp;The idea that research pricing should be tied to volume or fixed is another concept. </p> <p> &nbsp;I believe strongly that research should be tied to volume. </p> <p> &nbsp;Paul Spillane: For us to be successful, we have to determine a fee. We are the only part of the finance business that provides product for free. </p> <p> &nbsp;I don’t want us to be paid based on our stock-picking performance. 1-2 fund managers, and a batch of hedge funds, have given us a price schedule: you bring in a company manager, I'll pay X. you provide an expert, I'll pay Y. you set up road show for me, I'll pay Z. </p> <p> We're trying to ascertain value of what we provide. Our analysts only get paid if customers say, "Pay them". It's all client-directed. </p> <p> &nbsp;Alonzo: Independents have always been transparent, but sell-side have dragged their feet in complying with menu pricing. Shalett: Trading commissions should be going down slowly. </p> <p> &nbsp;There's no reason why they should be flat or rising. The wool is being pulled over the money management industry's eyes. </p> <p> Marginal cost of executing /clearing a trade is close to zero, and Sanford Bernstein is not even a scale player in this business. </p> <p> If you want to save money on research &amp; trading, start there first! Spillane: If you're head of research at a bulge-bracket bank, you focus your effort on minimizing outliers, so no one can sue you. </p> <p> &nbsp;You're not focused on creating alpha. Money management industry is afraid to say what they're paying for research. If a money manager says it's paying 2 cents for research someone can sue. But if you say you're spending it on execution, it's harder to complain about it. </p> <p> Look at Jefferies settlement. Shalett: Broader public policy question: what does research provide? </p> <p> &nbsp;Buy side says they're paying for liquidity, for there to be a dialogue. Trading cost curve has gone down 6 pct. annually since 1975, to 3.5 cents now. </p> <p> &nbsp;The regulators want you to be democratic, give access to everyone. </p> <p> Pricing mechanism should be scale neutral, to not overly advantage the largest money managers. Alonzo: Why do indies still get paid so much less than sell-side? </p> <p> Spillane: Because we let them! We don't know what we should be charging. We don't have enough senior-level relationships. We don't know if we're being overpaid or underpaid. </p> <p> &nbsp;You have to be willing to walk away from underpayment. Shalett: We don't put a formal price on our services. But we use the concept of fair share. </p> <p> We use polls, Greenwich polls. We're paid 1/3 of what we should be paid, if you compare our ranking in polls with the total payments to research providers. </p> <p> That hasn’t changed in 13 years. The reason is that the sell-side has a lock on being systematically overpaid. </p> <p> &nbsp;Spillane: Lisa, you have the power to change this. Just shut them off. Shalett: We'd shut them off if Thomson would implement the change to make it easier to shut people off. </p> <p> (laughter) Questions: What would it take for you to get out of execution? </p> <p> Shalett: It will only happen if we can be confident that we'll get paid 3x what we're paid now. In Europe, implementing CSAs as follows: 8 bps for execution, 7 bps for research, plus 2 bps for proprietary research when paying sell-sides. These sell-side firms are holding the indies' money for 90 days, paying no interest. </p> <p> If there were a DTC, a Switzerland, for these commissions, I'd join it and exit trading. But I don't believe in what's being implemented today. </p> <p> &nbsp;Alonzo: CSA gives firms freedom to use traditional payment mechanism. Is now the right time to push on pricing? Shalett: Depends partly on extent to which funds are generating substantial alpha. </p> <p> &nbsp;Hedge funds are willing to pay unlimited amount for good research. Spillane: How do you get a return on capital that you can't measure? If someone could provide a utility function for research, big banks would sign up and then focus on prop trading. </p> <p> &nbsp;We're entering dangerous part of cycle, because we've had good returns for several years. </p> <p> This is first year in 10-15 yrs when more hedge funds closed than opened. </p> <p> &nbsp;So it's a tough time to talk about pricing. Shalett: Big banks are generating 30% ROE. </p> <p> &nbsp;They're good businesses. Mayhew: Will we see a more level approach between pricing of sell-side and indie research? </p> <p> Spillane: We won't move to unbundling until we're forced to. We won't subject ourselves to the soft dollar pool, which is only 7-15% of giant pool of commissions ($14-$15B in US). </p> <p> &nbsp;I don’t want to be in the kiddie pool. Barry Hurewitz (Morgan Stanley): We have 500 analysts . </p> <p> &nbsp;Average buy-side person with a $50M commission pool has 11 buy-side analyst. Lisa might have highest per-hour price on the Street, today. </p> <p> &nbsp;I don’t see why you can't just price your services explicitly; that's what we do. Shalett responds: From 75 to 2000 (decimalization), trading was a commodity, because market was very concentrated. </p> <p> &nbsp;Most volume going thru NYSE specialists, whether it came from MS or GS, or it was OTC (fulfilled by market-maker). Post-2000, you had fragmentation of liquidity, which meant differential execution quality. </p> <p> &nbsp;Trading has become a more differentiated product. </p> <p> &nbsp;Capital commitment actually mattered. Now, pendulum is swinging back. </p> <p> &nbsp;Technology is reconcentrating liquidity. Buy-side can trade directly with the market. </p> <p> Vast majority of executions are commodities, or will be in next 2 years. </p> <p> &nbsp;So prices should be going down. It doesn't make sense that prices go up. </p> <p> CSAs favor some players over others. Macroeconomics don't stand up to scrutiny, and industrial behavior is being perverted as a result. </p> <p> &nbsp;Spillane: Morgan Stanley can't price by the hour, because there are too many constraints. </p> <p> Customers aren't willing to set a price. </p> <p> &nbsp;There are way too many internal pressures calling your #1 ranked analyst to come to a meeting, go to a conference, etc., to say simply that he bills at $3000/hour. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=391" /> http://www.circleofexperts.com/blog/CommentView.html?guid=391 General Public Markets Investing Securities Research
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Following are my rough notes from AQ Research's recent conference on "The Future of Research", on December 5.

The speakers on this very strong panel were:

 Scott Lessing, Chief Operating Officer, Citigroup Investment Research Shubh Saumya and

 Jai Sinha, Partners, Booz Allen David Weild IV, CEO,The National Research Exchange

 For more information on Booz Allen's views on this subject, see their report, Saving Sell-Side Research.

 Lessing: This question [of how to make investment research pay] is less pressing than it used to be 2 years ago.

 We're coming from a great year for our clients and research.

 There's been a shift towards payment for quality of research Jai Sinha:

News of death of research was greatly exaggerated. Components of value of research include distribution and service, as well as actual content.

Any time commissions are not explicit, there is waste. We don’t need to necessarily force change in the model Weild: Quality is in the eye of the beholder.

 What is quality to an actively traded hedge fund isn’t necessarily quality to a longer term account or a public company.

 I noticed Monika Schulz with Wall Street Letter in the back.

 She recently conducted an interview with Candace Browning, the Director of Research at Merrill Lynch.

Candace, when asked how the research product had changed, responded that it has become more "trading focused." It’s clear that public companies are having a tougher and tougher time getting the support that they need from the largest sell-side firms to reach long-term investors.

These accounts don’t generate enough commission volume to merit much attention yet they are the most important accounts for CEOs to reach.

As a consequence, more firms will need to ensure aftermarket support themselves. Let me share one interesting anecdote: I was talking with the CEO of $350-$400M Australasia-based company.

 A bulge bracket firm was taking this CEO on an all-expenses paid roadshow in New York and Boston to see institutional investors. This CEO couldn’t believe his good fortune and asked me “Why?” I asked him to share the list of accounts he was visiting and it was clear that most of these accounts (e.g., Tiger, SAC, Goldman Sachs Principal Strategies) were so large as to likely be prohibited from owning a stock of his market capitalization.

The CEO went on to say that all of his conversations focused on industry trends and not his company – a clear sign that they were mostly wasting his time.

We recently did a project for a $750M VC. They were working with a $500M company going public.

The bank with whom they were talking about going public didn’t have coverage on even one company with a market cap under $1billion.

While I might choose that firm to take me public, I sure need to be careful about who is going to support my “little” company in the aftermarket.

 Lessing We cover 3000 stocks. We've been expanding small/mid-cap stocks. Weild: We run one funny analysis. We look at daily volume per analyst per stock.

 This analytic shows that if you cover a firm within Dow 30, you're still competing for more volume/analyst than smaller cap stocks.

In fact, the median Dow 30 stock generates about 300,000 shares of volume per analyst per day, which drops to about 90,000 shares per analyst per day for the median stock in the S&P 500.

 Compare this to the NASDAQ Composite, which is more actively traded than the NYSE Composite, and the median stock generates only about 30K shares per analyst per day.

 This is partly the reason why if you're analyst #30 on IBM, you're still competing for more volume than analyst #2 on a mid-cap stock.

 A rule of thumb is that you are generating about $0.01/share/day available to research. The balance is siphoned off by program trading and low cost algorithmic trading.

Thus, despite the fact that accounts reject the need for more "maintenance research" on large cap stocks, the fact is that the stocks are so broadly held and generate so much volume per analyst that the economics are compelling.

Lessing: Volume of trading doesn’t drive our coverage decisions; it's investor interest. In addition, there is very little correlation to an idea that we generate and how we get paid.

 We can get paid in IBM trades for a small cap idea.

 Weild: Yes, but investor interest tends to be correlated to trading volume.

 Plus, your definition of small cap is apt to be higher than ours.

We’re looking at sub $500 million market cap companies and Citi is probably closer to $750 million and larger. Lessing: Agreed. Sinha: Unbundling will allow people to pay differentially.

Lessing: there's room for many different payment models. We're very adaptable in how we get paid. Greenwich Associates surveys say that 20-60% of commissions are allocated to research, and rest is execution (capital commitment, execution services, etc). I suspect that FSA data will be roughly comparable.

 We'll hold on to a larger percentage of this pot than competitors, and it's because our quality is higher. Sinha: The more street-dependent buy-side firms will allocate a larger percentage to research.

 I see a hollowing out of the middle, of the 35th person providing IBM coverage.

 Weild: Citigroup provides a whole host of products and services that the independent firms don’t – equity derivatives, enormous sales trading, algorithmic trading (Citigroup bought Lava Trading not that long ago), securities lending, and Citigroup is the #1 underwriter of equities globally.

Citi has a great portfolio of services that go beyond simply research and that gets reflected in commission payments.

Sinha: There is aligning of consumption with spend Spelling: We have a discussion with client about what resources we can commit to them; what % of payment pool should be sent to them.

Audience Question: What threats can you make?

I had a client say, "Show us what you're giving us. If you don't have that, how can you tell us what you're going to take away?" We have 3000 accounts.

 There were 4 contacts at one particular account who were heavy users of our research. They were the people we needed to upsell.

Tiers are binary: you turn it on or off. If you want research to be a profit center, how do you do that?

Saumya: How often is there a mismatch of clients who are dramatically underpaying? One of our clients asks, 'What is the research product?'

 Lessing: We don’t talk about resources cost in dollars per hour. We talk about where the client ranks with us, and say we believe you're underpaying.

Making Investment Research Pay http://www.circleofexperts.com/blog/PermaLink.html?guid=390 http://www.circleofexperts.com/blog/Making+Investment+Research+Pay.html Tue, 02 Jan 2007 17:33:30 GMT <p> Following are my rough notes from <a href="http://www.aqresearch.com">AQ Research</a>'s recent conference on "The Future of Research", on December 5. </p> <p> The speakers on this very strong panel were: </p> <p> &nbsp;Scott Lessing, Chief Operating Officer, Citigroup Investment Research Shubh Saumya and </p> <p> &nbsp;Jai Sinha, Partners, Booz Allen David Weild IV, CEO,<a href="http://researchexchange.com">The National Research Exchange</a> </p> <p> &nbsp;For more information on Booz Allen's views on this subject, see their report, <a href=" http://www.boozallen.com/publications/article/6502292">Saving Sell-Side Research</a>. </p> <p> &nbsp;Lessing: This question [of how to make investment research pay] is less pressing than it used to be 2 years ago. </p> <p> &nbsp;We're coming from a great year for our clients and research. </p> <p> &nbsp;There's been a shift towards payment for quality of research Jai Sinha: </p> <p> News of death of research was greatly exaggerated. Components of value of research include distribution and service, as well as actual content. </p> <p> Any time commissions are not explicit, there is waste. We don’t need to necessarily force change in the model Weild: Quality is in the eye of the beholder. </p> <p> &nbsp;What is quality to an actively traded hedge fund isn’t necessarily quality to a longer term account or a public company. </p> <p> &nbsp;I noticed Monika Schulz with Wall Street Letter in the back. </p> <p> &nbsp;She recently conducted an interview with Candace Browning, the Director of Research at Merrill Lynch. </p> <p> Candace, when asked how the research product had changed, responded that it has become more "trading focused." It’s clear that public companies are having a tougher and tougher time getting the support that they need from the largest sell-side firms to reach long-term investors. </p> <p> These accounts don’t generate enough commission volume to merit much attention yet they are the most important accounts for CEOs to reach. </p> <p> As a consequence, more firms will need to ensure aftermarket support themselves. Let me share one interesting anecdote: I was talking with the CEO of $350-$400M Australasia-based company. </p> <p> &nbsp;A bulge bracket firm was taking this CEO on an all-expenses paid roadshow in New York and Boston to see institutional investors. This CEO couldn’t believe his good fortune and asked me “Why?” I asked him to share the list of accounts he was visiting and it was clear that most of these accounts (e.g., Tiger, SAC, Goldman Sachs Principal Strategies) were so large as to likely be prohibited from owning a stock of his market capitalization. </p> <p> The CEO went on to say that all of his conversations focused on industry trends and not his company – a clear sign that they were mostly wasting his time. </p> <p> We recently did a project for a $750M VC. They were working with a $500M company going public. </p> <p> The bank with whom they were talking about going public didn’t have coverage on even one company with a market cap under $1billion. </p> <p> While I might choose that firm to take me public, I sure need to be careful about who is going to support my “little” company in the aftermarket. </p> <p> &nbsp;Lessing We cover 3000 stocks. We've been expanding small/mid-cap stocks. Weild: We run one funny analysis. We look at daily volume per analyst per stock. </p> <p> &nbsp;This analytic shows that if you cover a firm within Dow 30, you're still competing for more volume/analyst than smaller cap stocks. </p> <p> In fact, the median Dow 30 stock generates about 300,000 shares of volume per analyst per day, which drops to about 90,000 shares per analyst per day for the median stock in the S&amp;P 500. </p> <p> &nbsp;Compare this to the NASDAQ Composite, which is more actively traded than the NYSE Composite, and the median stock generates only about 30K shares per analyst per day. </p> <p> &nbsp;This is partly the reason why if you're analyst #30 on IBM, you're still competing for more volume than analyst #2 on a mid-cap stock. </p> <p> &nbsp;A rule of thumb is that you are generating about $0.01/share/day available to research. The balance is siphoned off by program trading and low cost algorithmic trading. </p> <p> Thus, despite the fact that accounts reject the need for more "maintenance research" on large cap stocks, the fact is that the stocks are so broadly held and generate so much volume per analyst that the economics are compelling. </p> <p> Lessing: Volume of trading doesn’t drive our coverage decisions; it's investor interest. In addition, there is very little correlation to an idea that we generate and how we get paid. </p> <p> &nbsp;We can get paid in IBM trades for a small cap idea. </p> <p> &nbsp;Weild: Yes, but investor interest tends to be correlated to trading volume. </p> <p> &nbsp;Plus, your definition of small cap is apt to be higher than ours. </p> <p> We’re looking at sub $500 million market cap companies and Citi is probably closer to $750 million and larger. Lessing: Agreed. Sinha: Unbundling will allow people to pay differentially. </p> <p> Lessing: there's room for many different payment models. We're very adaptable in how we get paid. Greenwich Associates surveys say that 20-60% of commissions are allocated to research, and rest is execution (capital commitment, execution services, etc). I suspect that FSA data will be roughly comparable. </p> <p> &nbsp;We'll hold on to a larger percentage of this pot than competitors, and it's because our quality is higher. Sinha: The more street-dependent buy-side firms will allocate a larger percentage to research. </p> <p> &nbsp;I see a hollowing out of the middle, of the 35th person providing IBM coverage. </p> <p> &nbsp;Weild: Citigroup provides a whole host of products and services that the independent firms don’t – equity derivatives, enormous sales trading, algorithmic trading (Citigroup bought Lava Trading not that long ago), securities lending, and Citigroup is the #1 underwriter of equities globally. </p> <p> Citi has a great portfolio of services that go beyond simply research and that gets reflected in commission payments. </p> <p> Sinha: There is aligning of consumption with spend Spelling: We have a discussion with client about what resources we can commit to them; what % of payment pool should be sent to them. </p> <p> Audience Question: What threats can you make? </p> <p> I had a client say, "Show us what you're giving us. If you don't have that, how can you tell us what you're going to take away?" We have 3000 accounts. </p> <p> &nbsp;There were 4 contacts at one particular account who were heavy users of our research. They were the people we needed to upsell. </p> <p> Tiers are binary: you turn it on or off. If you want research to be a profit center, how do you do that? </p> <p> Saumya: How often is there a mismatch of clients who are dramatically underpaying? One of our clients asks, 'What is the research product?' </p> <p> &nbsp;Lessing: We don’t talk about resources cost in dollars per hour. We talk about where the client ranks with us, and say we believe you're underpaying. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=390" /> http://www.circleofexperts.com/blog/CommentView.html?guid=390 General Public Markets Investing Securities Research
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I had lunch recently with David Jackson, CEO of SeekingAlpha, and a former neighbor of mine.

I thought that many of our Circle of Experts would benefit from contributing to David's company.

Briefly, www.SeekingAlpha.com is the leading blog source of stock market related commentary by money managers and industry experts and a major provider of financial content to Yahoo! Finance.

Articles published on Seeking Alpha reach over a million readers per month, about 17% of whom are finance professionals.

 Crucially, each article published by Seeking Alpha (including those syndicated on Yahoo Finance) contains a link to the author’s biography or URL of choice, and can therefore be used to publicize your availability for consultations via Circle of Experts.

If you are already writing any sort of analysis, there's no marginal cost or effort to you. Just send SeekingAlpha your work, and they'll do all the editing and production for you.

 You can read about Seeking Alpha at http://seekingalpha.com/about, view a list of sample contributors at http://seekingalpha.com/contributors, and submit an article for publication (Seeking Alpha’s editors will contact you directly after doing so) at http://seekingalpha.com/do/content/submit.php or by emailing Mick(at)SeekingAlpha.com.

(As disclosure, Nitron Advisors does not get any sort of commission or payment from SeekingAlpha if you sign up; we just think that publishing through their channel is valuable to you.)

SeekingAlpha.com: How to increase your consulting revenue and your profile http://www.circleofexperts.com/blog/PermaLink.html?guid=385 http://www.circleofexperts.com/blog/SeekingAlphacom+How+To+Increase+Your+Consulting+Revenue+And+Your+Profile.html Wed, 29 Nov 2006 13:27:52 GMT <p> I had lunch recently with David Jackson, CEO of <a href="http://SeekingAlpha.com">SeekingAlpha</a>, and a former neighbor of mine. </p> <p> I thought that many of our Circle of Experts would benefit from contributing to David's company. </p> <p> Briefly, <a href="http://www.SeekingAlpha.com">www.SeekingAlpha.com</a> is the leading blog source of stock market related commentary by money managers and industry experts and a major provider of financial content to Yahoo! Finance. </p> <p> Articles published on Seeking Alpha reach over a million readers per month, about 17% of whom are finance professionals. </p> <p> &nbsp;Crucially, each article published by Seeking Alpha (including those syndicated on Yahoo Finance) contains a link to the author’s biography or URL of choice, and can therefore be used to publicize your availability for consultations via Circle of Experts. </p> <p> If you are already writing any sort of analysis, there's no marginal cost or effort to you. Just send SeekingAlpha your work, and they'll do all the editing and production for you. </p> <p> &nbsp;You can read about Seeking Alpha at <a href="http://seekingalpha.com/about">http://seekingalpha.com/about</a>, view a list of sample contributors at <a href="http://seekingalpha.com/contributors">http://seekingalpha.com/contributors</a>, and submit an article for publication (Seeking Alpha’s editors will contact you directly after doing so) at <a href="http://seekingalpha.com/do/content/submit.php">http://seekingalpha.com/do/content/submit.php</a> or by emailing Mick(at)SeekingAlpha.com. </p> <p> (As disclosure, Nitron Advisors does not get any sort of commission or payment from SeekingAlpha if you sign up; we just think that publishing through their channel is valuable to you.) </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=385" /> http://www.circleofexperts.com/blog/CommentView.html?guid=385 Career Acceleration General Personal Productivity Public Markets Investing Securities Research
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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.

Wall St. Journal of Today: Big Investors Turn to Network of Informants http://www.circleofexperts.com/blog/PermaLink.html?guid=383 http://www.circleofexperts.com/blog/Wall+St+Journal+Of+Today+Big+Investors+Turn+To+Network+Of+Informants.html Mon, 27 Nov 2006 06:16:58 GMT <p> Nitron Advisors is featured on the front page of today's Wall Street Journal: </p> <p> <strong>Big Investors Turn to Network of Informants </strong>"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." <a href="http://online.wsj.com/article/SB116459881353833275.html?mod=hpp_us_pageone">More (requires subscription or two-week trial)</a> </p> <p> UPDATE: Michael Mayhew posted the article's <a href="http://integrityresearch.blogdrive.com/archive/681.html">text</a> in full, without the graphic which discusses revenue of Nitron and other players in the space. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=383" /> http://www.circleofexperts.com/blog/CommentView.html?guid=383 General Private Equity Investing Public Markets Investing Securities Research
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I took some notes on Sandra Manzke's talk at this week’s World Hedge Funds Summit .

I have enclosed slides from her Toronto presentation and a Eurekahedge presentation.

 Biography of Sandra L. Manzke Sandra Manzke, Chairman and Chief Executive Officer, founded Maxam Capital Management LLC in April 2005.

Prior to that, Sandra was the founder and co-CEO of Tremont Capital Management.

She was responsible for the oversight of Tremont’s operations and the development of Tremont’s business plan.

 She was also a member of the Investment Advisory Board. Sandra oversaw the creation and sale of Tremont’s life insurance products, which were the first to use hedge fund investments.

 Prior to the formation of Tremont, Sandra was a principal at Rogers, Casey & Barksdale, Inc., a pension fund consulting firm, from 1976 to 1984.

 While there, she served as the senior consultant to a number of major corporate/ERISA clients. From 1974 to 1976, she worked as an independent consultant at Bernstein Macauley where she was responsible for reviewing the firm’s investment products.

 She was at Scudder Stevens & Clark from 1969 to 1974, where she established one of their internal measurement systems during her tenure as an Investment Manager.

Sandra holds a Bachelor of Fine Arts degree from Pratt.

NOTES

Managers close, but they never close permanently.

When they reopen, they reopen for existing investors.

 Such prominent managers as Marc Druckenmiller, Marc Kingdon, Marshall Wace are not in any index, so the indices are always partial. Managers are slow to report sometimes, particularly after a down month.

 When Cerberus closed to new investors, some indices took it out entirely.

 But then they reopened to new investors, and they weren't let back in. Providers of Investable Hedge Fund Indices include: EurekaHedge & MAXAM HFR: index is index of all funds that have managed accounts with them.

 CSFB MSCI FTSE Dow Jones Greenwich Van Royal Bank of Scotland Deutsche Bank—retail focused S&P is no longer offering investable hedge fund index Today 300 hedge funds in Hong Kong, about 300 in Canada Now launching a LatAm product.

 They launched a JV : Eureka is a data company, MAXAM is asset management.

How index is constructed: - Assets over $50m - Allocate initially to 30 largest managers - Flexibility to match country allocation, market cap, and strategy comprised in index - Rebalance semi-annually - If a manager closes ,the fund stays in the index A lot of fund of funds do not outperform the index, so people will move to the index.

It's much cheaper to move to the index. $250K minimum

Investable Hedge Fund Indices: Investable Indices or Hedge Fund of Funds? http://www.circleofexperts.com/blog/PermaLink.html?guid=382 http://www.circleofexperts.com/blog/Investable+Hedge+Fund+Indices+Investable+Indices+Or+Hedge+Fund+Of+Funds.html Wed, 22 Nov 2006 13:03:16 GMT <p> I took some notes on Sandra Manzke's talk at this week’s <a href="http://www.worldhedgefundssummit.com">World Hedge Funds Summit</a> . </p> <p> I have enclosed slides from her <a href="http://www.circleofexperts.com/assets/docs/Manzke-200611.pdf">Toronto presentation</a> and a <a href="http://www.circleofexperts.com/assets/docs/Manzke-200609.pdf">Eurekahedge presentation</a>. </p> <p> &nbsp;<strong>Biography of Sandra L. Manzke </strong>Sandra Manzke, Chairman and Chief Executive Officer, founded Maxam Capital Management LLC in April 2005. </p> <p> Prior to that, Sandra was the founder and co-CEO of Tremont Capital Management. </p> <p> She was responsible for the oversight of Tremont’s operations and the development of Tremont’s business plan. </p> <p> &nbsp;She was also a member of the Investment Advisory Board. Sandra oversaw the creation and sale of Tremont’s life insurance products, which were the first to use hedge fund investments. </p> <p> &nbsp;Prior to the formation of Tremont, Sandra was a principal at Rogers, Casey &amp; Barksdale, Inc., a pension fund consulting firm, from 1976 to 1984. </p> <p> &nbsp;While there, she served as the senior consultant to a number of major corporate/ERISA clients. From 1974 to 1976, she worked as an independent consultant at Bernstein Macauley where she was responsible for reviewing the firm’s investment products. </p> <p> &nbsp;She was at Scudder Stevens &amp; Clark from 1969 to 1974, where she established one of their internal measurement systems during her tenure as an Investment Manager. </p> <p> Sandra holds a Bachelor of Fine Arts degree from Pratt. </p> <p> <strong>NOTES</strong> </p> <p> Managers close, but they never close permanently. </p> <p> When they reopen, they reopen for existing investors. </p> <p> &nbsp;Such prominent managers as Marc Druckenmiller, Marc Kingdon, Marshall Wace are not in any index, so the indices are always partial. Managers are slow to report sometimes, particularly after a down month. </p> <p> &nbsp;When Cerberus closed to new investors, some indices took it out entirely. </p> <p> &nbsp;But then they reopened to new investors, and they weren't let back in. Providers of Investable Hedge Fund Indices include: EurekaHedge &amp; MAXAM HFR: index is index of all funds that have managed accounts with them. </p> <p> &nbsp;CSFB MSCI FTSE Dow Jones Greenwich Van Royal Bank of Scotland Deutsche Bank—retail focused S&amp;P is no longer offering investable hedge fund index Today 300 hedge funds in Hong Kong, about 300 in Canada Now launching a LatAm product. </p> <p> &nbsp;They launched a JV : Eureka is a data company, MAXAM is asset management. </p> <p> How index is constructed: - Assets over $50m - Allocate initially to 30 largest managers - Flexibility to match country allocation, market cap, and strategy comprised in index - Rebalance semi-annually - If a manager closes ,the fund stays in the index A lot of fund of funds do not outperform the index, so people will move to the index. </p> <p> It's much cheaper to move to the index. $250K minimum </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=382" /> http://www.circleofexperts.com/blog/CommentView.html?guid=382 General Public Markets Investing Securities Research
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I enjoyed the October 30 Hedge Fund Panel Discussion by the authors of, "Hedge Funds: Insights in Performance Measurement, Risk Analysis, and Portfolio Allocation", sponsored by the Chicago GSB Alumni Club of Greater New York. Heidi Christensen Goldstein did pre-introduction Then Cyrus Claffey, President Chicago GSB Club of NY, made formal introduction Moderator:

David K.A. Mordecai President Risk Economics Limited, Inc.

Mark Shore Former COO of VK Capital Inc.Morgan Stanley, New York

Hilary Till Co-Founder & Portfolio Manager Premia Capital Management, LLC, Chicago (Premiacap.com) Formerly Chief of Derivative Strategies at Putnam, and formerly at Harvard Management Company. BA Statistics UChicago. Fulbright Fellow LSE. Advisory board of natural resources hedge fund/fund of funds Now editing a book on commodity investing

Fabrice Rouah Ph.D. Candidate McGill University, Montreal Institute of Financial Mathematics Studies CTAs/hedge funds in general

 Jacqueline Meziani Senior Director Standard & Poors, New York – hedge fund indices. Chemical Bank, Citigroup MBA Stern 10 years at S&P Product Manager: Ops, marketing, licensing, research. My job is to catch things if they fall.

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Mark Shore Book excerpt and Slides Ch. 25 Study: modern portfolio theory assumes returns to be normal—but is this true?

Most asset classes are not bell-shaped normal curves. Can higher statistical moments (skewness, kurtosis) offer a clearer picture of risk-adjusted returns?

 How do hedge funds and managed futures perform individually and simultaneously as diversifiers in a traditional portfolio?---expanded Harry Kat 2002 study of hedge funds and managed futures Sharpe ratio is widely misused --- Sharpe Ratio = (returns-RF rate)/std deviation Assumptions: - historic results have some predictive ability - mean and variance are sufficient statistics for evaluating a portfolio - Distribution is symmetrical….BUT many studies have shown that time-series distributions are asymmetrical - An investment with lower correlations (such as alternative investments) may add greater value with a lower Sharpe ratio Sortino Ratio ----- (return-MAR)/downside deviation ---- is a better concept of downside risk.

 If Standard Deviation goes up, does that mean risk has increased? Not necessarily. Schneeweis & Spurgin (2002): the independent returns of alternative investments are not as important as how they may benefit the overall portfolio. Consider co-skewness of each portfolio component.

 Co-skewness may be utilized to reduce "volatility shocks' or tail risks Kurtosis- the fatness of the tail by the peakedness or flatness of the returns distribution Beckmann and Scholz (2003) Kraus and Litzenberger (1976) support a rational investor's preference for positive skewness and reducing volatility Till (2002): mean-variance metric is most appropriate when returns are symmetrical.

 Thus using it for asymmetrical returns assumes the investor is indifferent between upside volatility and downside volatility Kahneman and Tversky Kat study (basis of Mark Shore work): asked if hedge funds and managed futures complement each other? Answer: yes, when managed futures receive >45% of alternative investment allocation.

 Indices for Kat study: S&P 500 index, 10 yr Salomon Bros govt bond index, and a portfolio of 20 funds, and the Stark 300 index of managed futures Shore study: S&P 500 index, Citigroup Corporate bond index, HFR fund of fund index, and CISDM Conclusion: Sharpe ratio may overestimate the risk-adjusted returns by de-emphasizing the downside volatility of investments with negative skewness.

Sharpe ratio may understate the risk-adjusted returns of investments with positive skewness by penalizing positive volatility. S-ratio is a good ratio to use.

-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=

Ms. Hilary Till Slides Hedge Funds: Quantitative Insights

1. Return Sources

A. Inefficiencies What is capacity of hedge fund industry (with an alpha advantage) ? (based on argument in Foss (2004)) If hedge funds are exploiting inefficiencies, someone must provide them. Assume: Maximum tolerance of average investor supplying inefficiencies: -50 basis points (assumption based on size of inefficiency in global fixed income markets) Size of global capital markets: $55 trillion Required excess return for hedge funds: 10%. Ergo: implies the hedge fund industry could go to $2.75 trillion under management.

 Caveat 1: prop traders also are fighting with hedge funds to exploit these inefficiencies

 Caveat 2: many strategies are based on earning risk premia, not on exploiting inefficiencies.: Relative-value bond funds, equity risk arb, value vs. growth, small cap stocks, high-yield currency investing. Examples drawn from Cochrane 1999ab, etc.) I.

Return Sources C. Illiquidity Reason: tick-by-tick evaluation of a good investment is painful. Nassim Taieb (2001), Fooled by Randomness, Table 3.1: An investment of 15% return, with 10% volatility/year, implies: Scale Probability of Making Money at Different Scales 1 yr 93% 1 q 77% 1 mo 67% 1 day 54% 1 hr 51.3% 1 min 50.17% 1 sec 50.02% So on a tick-by-tick scale, you'll suffer about half of all days from a feeling of losing money

-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=

Fabrice Rouah Review of the Academic Hedge Fund Literature (Ch. 13) Slides

1. Performance Persistence—do winners repeat? 3 methods to analyze this: + 2x2 contingency tables + binomial model (multi-period) + regression of current performance returns on past rerturns Summary: Little evidence of persistence, especially long-term Most persistence is due to losers continuing to lose Some losers increase volatility in attempt to boost returns.

 2. Factor modeling No transparency, so investors attempt to identify factor exposures.

Important for anyone holding several funds (pensions, FoFs) Helps to eliminate funds with similar strategies.

 Linear models are difficult because of the non-linear relationship between HF returns and asset returns (options, short-selling).

R squareds for hedge funds are dramatically lower than those for mutual funds (which are typically 0.8-0.9), i.e., these conventional factors have low explanatory power.

 Particularly important study: Agarwal & Naik 2004 Non-linear returns make linear modeling difficult

3. Portfolio diversification Many styles have low correlation with equity & bond indices. Stress testing indicates they hold up well during market downturns.

 Funds should not be co-integrated with markets or with themselves Adding hedge funds to a traditional portfolio increases its risk-return profile Simulation indicates 5-20% allocation Correlations: tend to be low (0.37 vs. S&P 500).

High p value means there's not enough evidence to show that correlation is anything other than zero.

4. Survivorship bias Compares returns of portfolios.

 This is the bias you will experience if you analyze a portfolio that contains only live funds. Usually about 300 bps.

In Mutual Funds, it's usually <100 bps.

This is the most important of all biases.

 5. Survival analysis how long can HFs be expected to survive, and how fast do they die? New area of research New inflows are from institutional investors They wish to invest long-term, but are worried about high attrition rates.

Seek funds with longevity Factors driving survival are the same factors driving survivorship bias. 50% survival time (i.e., half-life)= one-half funds die before this date, and one-half die after.

 Estimates are of 5-6 years. Most of these studies are very biased because they usually only use funds born after 94. But one of the better studies says >10 years. No surprise: low returns, small asset base, young manager age all correlate with high mortality

-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=

Jacqueline Meziani Disclosure: "I am not a quant." Edward Blum, my former colleague, is the major researcher on this chapter Studied equity long/shorts Short position serves following purposes: alpha generation, hedging of market risk, earning interest on short position while collecting short rebate Managers may use futures and options to hedge their positions. Overall, net exposure of E L/S funds tend to have a positive bias.

High beta funds usually have high net market exposure are often concentrated.

Moderate beta funds hold proportionately more short positions that would lower net market exposure.

 High beta variability may indicate several things: manager consistently includes securities different from those in benchmark. A market-timing fund manager is controlling beta.

 A stock-picking fund manager does not manage beta b/c he is concerned primarily with fundamentals of stocks in the portfolio Investable E L/S indices are fairly clustered Managers tend to go long small cap stocks and go short large cap stocks. Managers want more liquidity on short side.

Negative relationships with value premium.

These managers were taking long positions with growth stocks and short positions with value stocks (although this finding is less robust).

 On average, E L/S hedge funds returns are drivne by returns of the global equity market, size premium, and the value premium.

Hedge Funds: Insights in Performance Measurement, Risk Analysis, and Portfolio Allocation http://www.circleofexperts.com/blog/PermaLink.html?guid=381 http://www.circleofexperts.com/blog/Hedge+Funds+Insights+In+Performance+Measurement+Risk+Analysis+And+Portfolio+Allocation.html Wed, 22 Nov 2006 12:54:18 GMT <p> I enjoyed the October 30 Hedge Fund Panel Discussion by the authors of, "<a href="http://www.chicagogsb.edu/alumni/clubs/domestic/newyork/events/2006-10-30_wileyandsons.html#Event ">Hedge Funds: Insights in Performance Measurement, Risk Analysis, and Portfolio Allocation</a>", sponsored by the Chicago GSB Alumni Club of Greater New York. Heidi Christensen Goldstein did pre-introduction Then Cyrus Claffey, President Chicago GSB Club of NY, made formal introduction Moderator: </p> <p> <strong>David K.A. Mordecai </strong>President Risk Economics Limited, Inc. </p> <p> <strong>Mark Shore</strong> Former COO of VK Capital Inc.Morgan Stanley, New York </p> <p> <strong>Hilary Till </strong>Co-Founder &amp; Portfolio Manager Premia Capital Management, LLC, Chicago (Premiacap.com) Formerly Chief of Derivative Strategies at Putnam, and formerly at Harvard Management Company. BA Statistics UChicago. Fulbright Fellow LSE. Advisory board of natural resources hedge fund/fund of funds Now editing a book on commodity investing </p> <p> <strong>Fabrice Rouah </strong>Ph.D. Candidate McGill University, Montreal Institute of Financial Mathematics Studies CTAs/hedge funds in general </p> <p> &nbsp;<strong>Jacqueline Meziani </strong>Senior Director Standard &amp; Poors, New York – hedge fund indices. Chemical Bank, Citigroup MBA Stern 10 years at S&amp;P Product Manager: Ops, marketing, licensing, research. My job is to catch things if they fall. <br> <br> -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= <br> <br> Mark Shore <a href="http://www.circleofexperts.com/assets/docs/Shore-200611-Skewing.pdf">Book excerpt</a> and <a href="http://www.circleofexperts.com/assets/docs/Shore-200611-PPT.pdf">Slides </a>Ch. 25 Study: modern portfolio theory assumes returns to be normal—but is this true? </p> <p> Most asset classes are not bell-shaped normal curves. Can higher statistical moments (skewness, kurtosis) offer a clearer picture of risk-adjusted returns? </p> <p> &nbsp;How do hedge funds and managed futures perform individually and simultaneously as diversifiers in a traditional portfolio?---expanded Harry Kat 2002 study of hedge funds and managed futures Sharpe ratio is widely misused --- Sharpe Ratio = (returns-RF rate)/std deviation Assumptions: - historic results have some predictive ability - mean and variance are sufficient statistics for evaluating a portfolio - Distribution is symmetrical….BUT many studies have shown that time-series distributions are asymmetrical - An investment with lower correlations (such as alternative investments) may add greater value with a lower Sharpe ratio Sortino Ratio ----- (return-MAR)/downside deviation ---- is a better concept of downside risk. </p> <p> &nbsp;If Standard Deviation goes up, does that mean risk has increased? Not necessarily. Schneeweis &amp; Spurgin (2002): the independent returns of alternative investments are not as important as how they may benefit the overall portfolio. Consider co-skewness of each portfolio component. </p> <p> &nbsp;Co-skewness may be utilized to reduce "volatility shocks' or tail risks Kurtosis- the fatness of the tail by the peakedness or flatness of the returns distribution Beckmann and Scholz (2003) Kraus and Litzenberger (1976) support a rational investor's preference for positive skewness and reducing volatility Till (2002): mean-variance metric is most appropriate when returns are symmetrical. </p> <p> &nbsp;Thus using it for asymmetrical returns assumes the investor is indifferent between upside volatility and downside volatility Kahneman and Tversky Kat study (basis of Mark Shore work): asked if hedge funds and managed futures complement each other? Answer: yes, when managed futures receive &gt;45% of alternative investment allocation. </p> <p> &nbsp;Indices for Kat study: S&amp;P 500 index, 10 yr Salomon Bros govt bond index, and a portfolio of 20 funds, and the Stark 300 index of managed futures Shore study: S&amp;P 500 index, Citigroup Corporate bond index, HFR fund of fund index, and CISDM Conclusion: Sharpe ratio may overestimate the risk-adjusted returns by de-emphasizing the downside volatility of investments with negative skewness. </p> <p> Sharpe ratio may understate the risk-adjusted returns of investments with positive skewness by penalizing positive volatility. S-ratio is a good ratio to use. <br> <br> -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= <br> <br> Ms. Hilary Till <a href="http://www.circleofexperts.com/assets/docs/Till-200611.pdf">Slides</a> Hedge Funds: Quantitative Insights </p> <p> 1. Return Sources </p> <p> A. Inefficiencies What is capacity of hedge fund industry (with an alpha advantage) ? (based on argument in Foss (2004)) If hedge funds are exploiting inefficiencies, someone must provide them. Assume: Maximum tolerance of average investor supplying inefficiencies: -50 basis points (assumption based on size of inefficiency in global fixed income markets) Size of global capital markets: $55 trillion Required excess return for hedge funds: 10%. Ergo: implies the hedge fund industry could go to $2.75 trillion under management. </p> <p> &nbsp;Caveat 1: prop traders also are fighting with hedge funds to exploit these inefficiencies </p> <p> &nbsp;Caveat 2: many strategies are based on earning risk premia, not on exploiting inefficiencies.: Relative-value bond funds, equity risk arb, value vs. growth, small cap stocks, high-yield currency investing. Examples drawn from Cochrane 1999ab, etc.) I. </p> <p> Return Sources C. Illiquidity Reason: tick-by-tick evaluation of a good investment is painful. Nassim Taieb (2001), Fooled by Randomness, Table 3.1: An investment of 15% return, with 10% volatility/year, implies: Scale Probability of Making Money at Different Scales 1 yr 93% 1 q 77% 1 mo 67% 1 day 54% 1 hr 51.3% 1 min 50.17% 1 sec 50.02% So on a tick-by-tick scale, you'll suffer about half of all days from a feeling of losing money<br> <br> -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=<br> <br> Fabrice Rouah Review of the Academic Hedge Fund Literature (Ch. 13) <a href="http://www.circleofexperts.com/assets/docs/Rouah-200611.ppt">Slides</a> </p> <p> 1. Performance Persistence—do winners repeat? 3 methods to analyze this: + 2x2 contingency tables + binomial model (multi-period) + regression of current performance returns on past rerturns Summary: Little evidence of persistence, especially long-term Most persistence is due to losers continuing to lose Some losers increase volatility in attempt to boost returns. </p> <p> &nbsp;2. Factor modeling No transparency, so investors attempt to identify factor exposures. </p> <p> Important for anyone holding several funds (pensions, FoFs) Helps to eliminate funds with similar strategies. </p> <p> &nbsp;Linear models are difficult because of the non-linear relationship between HF returns and asset returns (options, short-selling). </p> <p> R squareds for hedge funds are dramatically lower than those for mutual funds (which are typically 0.8-0.9), i.e., these conventional factors have low explanatory power. </p> <p> &nbsp;Particularly important study: Agarwal &amp; Naik 2004 Non-linear returns make linear modeling difficult </p> <p> 3. Portfolio diversification Many styles have low correlation with equity &amp; bond indices. Stress testing indicates they hold up well during market downturns. </p> <p> &nbsp;Funds should not be co-integrated with markets or with themselves Adding hedge funds to a traditional portfolio increases its risk-return profile Simulation indicates 5-20% allocation Correlations: tend to be low (0.37 vs. S&amp;P 500). </p> <p> High p value means there's not enough evidence to show that correlation is anything other than zero. </p> <p> 4. Survivorship bias Compares returns of portfolios. </p> <p> &nbsp;This is the bias you will experience if you analyze a portfolio that contains only live funds. Usually about 300 bps. </p> <p> In Mutual Funds, it's usually &lt;100 bps. </p> <p> This is the most important of all biases. </p> <p> &nbsp;5. Survival analysis how long can HFs be expected to survive, and how fast do they die? New area of research New inflows are from institutional investors They wish to invest long-term, but are worried about high attrition rates. </p> <p> Seek funds with longevity Factors driving survival are the same factors driving survivorship bias. 50% survival time (i.e., half-life)= one-half funds die before this date, and one-half die after. </p> <p> &nbsp;Estimates are of 5-6 years. Most of these studies are very biased because they usually only use funds born after 94. But one of the better studies says &gt;10 years. No surprise: low returns, small asset base, young manager age all correlate with high mortality <br> <br> -=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= <br> <br> Jacqueline Meziani Disclosure: "I am not a quant." Edward Blum, my former colleague, is the major researcher on this chapter Studied equity long/shorts Short position serves following purposes: alpha generation, hedging of market risk, earning interest on short position while collecting short rebate Managers may use futures and options to hedge their positions. Overall, net exposure of E L/S funds tend to have a positive bias. </p> <p> High beta funds usually have high net market exposure are often concentrated. </p> <p> Moderate beta funds hold proportionately more short positions that would lower net market exposure. </p> <p> &nbsp;High beta variability may indicate several things: manager consistently includes securities different from those in benchmark. A market-timing fund manager is controlling beta. </p> <p> &nbsp;A stock-picking fund manager does not manage beta b/c he is concerned primarily with fundamentals of stocks in the portfolio Investable E L/S indices are fairly clustered Managers tend to go long small cap stocks and go short large cap stocks. Managers want more liquidity on short side. </p> <p> Negative relationships with value premium. </p> <p> These managers were taking long positions with growth stocks and short positions with value stocks (although this finding is less robust). </p> <p> &nbsp;On average, E L/S hedge funds returns are drivne by returns of the global equity market, size premium, and the value premium. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=381" /> http://www.circleofexperts.com/blog/CommentView.html?guid=381 General Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=380 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=380 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=380 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=380 Jason Prole, Quantitative Strategist at Capital Risk Management Inc., presented an interesting talk on "Quantitative Strategies" at the World Hedge Fund Summit in Toronto. slides here. Quantitative Hedge Fund Strategies http://www.circleofexperts.com/blog/PermaLink.html?guid=380 http://www.circleofexperts.com/blog/Quantitative+Hedge+Fund+Strategies.html Sun, 19 Nov 2006 18:34:31 GMT Jason Prole, Quantitative Strategist at <a href="www.capitalriskmanagement.com">Capital Risk Management Inc.</a>, presented an interesting talk on "Quantitative Strategies" at the World Hedge Fund Summit in Toronto. <a href="http://www.circleofexperts.com/assets/docs/Prole%2020061106.pdf">slides</a> here.<img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=380" /> http://www.circleofexperts.com/blog/CommentView.html?guid=380 General Public Markets Investing Securities Research http://www.circleofexperts.com/blog/Trackback.html?guid=376 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=376 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=376 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=376

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.

Ian Bremmer- Hedging Political Instability for Insight and Profit http://www.circleofexperts.com/blog/PermaLink.html?guid=376 http://www.circleofexperts.com/blog/Ian+Bremmer+Hedging+Political+Instability+For+Insight+And+Profit.html Sat, 11 Nov 2006 18:35:53 GMT <p> My colleague <a href="http://www.nitronadvisors.com/management">Scott Lichtman</a> took notes on Ian Bremmer's talk Monday night at this past week’s <a href="http://www.worldhedgefundssummit.com">World Hedge Funds Summit</a> . Dr. Bremmer's prediction that Rumsfeld would resign proved accurate within 48 hours. </p> <p> <br> Ian Bremmer, President of <a href="http://www.eurasiagroup.net">Eurasia Group</a>, and author of <a href="http://www.jcurvebook.com">The J-Curve: A New Way to Understand Why Nations Rise and Fall</a>, 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.<br> <br> <br> <br> Opening question: Why is <a href="http://www.activistchat.com/">Iran </a>a much greater risk to the world economy than <a href="http://www.nkzone.org">North Korea</a>? What does China take from the US during business negotiations that Russia doesn’t?<br> <br> <br> <br> 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. </p> <p> 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. </p> <p> &nbsp;Think of the Nike swoosh with the tail opening on the right – or a check mark with a rounded bottom. <br> <br> <br> <br> 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. </p> <p> &nbsp;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. <br> </p> <p> See more below on China (and role in Africa), India, North Korea/Japan, Russia and oil, and the US elections.<br> <br> 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.<br> <br> 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)<br> <br> China: In <a href="http://www.chinabloglist.org/">China</a>, 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.<br> <br> 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.<br> <br> 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. <br> <br> 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."<br> <br> <a href="http://indianeconomy.org/">India</a>: 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.<br> <br> <a href="http://www.russiablog.org/">Russia</a>: 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. <br> </p> <p> 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.<br> <br> 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.<br> <br> 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.<br> <br> Russia sees Iran as a useful geopolitical hedge against US in the region. China sees it as a problem to be contained.<br> <br> 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.<br> <br> 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).<br> <br> 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 &amp; Israel. Similar in Britain. <br> <br> 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.<br> <br> US elections: Bremmer predicted the elections’ impact, noting "Elections are tomorrow, so I get the chance to be wrong immediately." </p> <p> <strong>He predicted Rumsfeld and/or Cheney stepping down,</strong> Cheney ostensibly for health reasons. </p> <p> &nbsp;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. </p> <p> McCain is a front runner but is having good and bad days now (even for a President, he’s relatively old at 72). </p> <p> &nbsp;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.<br> </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=376" /> http://www.circleofexperts.com/blog/CommentView.html?guid=376 General Private Equity Investing Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=372 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=372 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=372 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=372 =============================================================
                                            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.html
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.  

Seeking Consumer Technology Experts for New York Hedge Fund Dinner Wednesday, October 4th, 2006 http://www.circleofexperts.com/blog/PermaLink.html?guid=372 http://www.circleofexperts.com/blog/Seeking+Consumer+Technology+Experts+For+New+York+Hedge+Fund+Dinner+Wednesday+October+4th+2006.html Tue, 31 Oct 2006 19:06:16 GMT =============================================================<span style="font-weight: bold;"> <br> </span><b>&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Seeking Consumer Technology Experts<span style="font-weight: bold;"> <br> </span>&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; or New York Hedge Fund Dinner</b><b> <br> &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp; Wednesday, October 4th, 2006</b> <br> =============================================================<br> <b> <br> We are organizing a dinner for consumer technology experts to talk with<br> hedge fund investors interested in this sector. This invitation-only event will be in <br> Manhattan on October 4th. You will have a chance to talk informally with some of the<br> major hedge fund investors in this sector.<br> </b> <br> We're looking for senior industry executives and other experts with the following backgrounds:<br> <br> +&nbsp;&nbsp;&nbsp; Personal computers (Dell, HP, Lenovo, Apple, etc.)<br> +&nbsp;&nbsp;&nbsp; Flash memory (SanDisk, Kingston, Corsair, etc.)<br> +&nbsp;&nbsp;&nbsp; MP3 Players (Apple, Creative, Archos, etc.)<br> +&nbsp;&nbsp;&nbsp; GPS Systems (Garmin, TomTom, etc.) <br> +&nbsp;&nbsp;&nbsp; Mobile telephones (Nokia, Motorola, Palm, Blackberry, etc.)<br> &nbsp;<br> <br> <b>Qualifications:</b> As an expert, you have at least four years senior experience in the consumer technology space.&nbsp; <br> You have a “big picture” perspective on different firms in the space. <br> <br> &nbsp;<br> If you are not already a member of our Circle of Experts, please visit <a href="http://www.circleofexperts.com/apply-now.html">http://www.circleofexperts.com/apply-now.html</a> <br> 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.&nbsp; Please note that we must review your bio and talk with you before we can accept you for the dinner. &nbsp;<br> <br> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=372" /> http://www.circleofexperts.com/blog/CommentView.html?guid=372 General Private Equity Investing Public Markets Investing Securities Research
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I went to a very worthwhile talk last night at the Harvard Club by Mohamed A. El-Erian, President and CEO, Harvard Management Company, which manages the $29 billion Harvard endowment (as of 6/30/06). The endowment has had consistently impressive performance. As background, I've posted on the blog below an article I wrote for the Harbus, the HBS school newspaper, back in 1998, profiling Jack Meyer (Dr. El-Erian's predecessor).

One of the marks of a sophisticated thinker is that he can make complex subjects seem simple. The global economy is certainly complex (especially now) but this talk boils it down to just a few key issues and tensions.

My notes:

                                                                                "Navigating a Fluid World"

Presentation to the Harvard Club of New York

Mohamed A. El-Erian, President and CEO, Harvard Management Company

and Faculty Member at Harvard Business School

Oct. 17, 2006

You're obviously not Mets fans or else you wouldn't be here.

Will discuss impact of global economy on investing. Internally, we've gone back to 1st principles as we rebuild HMC.

Signals from the market are increasingly inconsistent (i.e., confusing). We've come across issues that are systemic in nature, uncertain in impact. And we have lots of questions. Some will think we don’t know the answers. Some will think we know but aren't telling. And you're both right.

Market signals which used to appear sequentially inconsistent now appear simultaneously so. So very tempting to dismiss them as noise. Don't dismiss them as noise---they're consequential in terms of info content.

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

1. What are the markets trying to tell us?

Signals have gone from being sequentially inconsistent to being simultaneously inconsistent. 3 examples:

A) In the world's most liquid markets, are US equities or US bonds correct? Equity market is doing well. Suggests vibrant economy. But bond market suggests economy is slowing down very quickly. Last week, both shape & level of interest rates suggest something more sinister than a soft landing.

B) What to make of the unusual dispersion in interest rate forecasts in the context of subdued volatility? Some suggest by Dec. 07, Fed will cut rates to 4%. Some suggest Fed will raise rates to 6%. I've never seen such a range in terns of magnitude and sign. Reason: we're at an inflection point in the economy.

o        Market volatility has declined (VIX index). Intra-market differentiation in developed markets has also declined (graph: FTSE All-europe valuation dispersion). EM Credit spreads have tightened in a quasi-linear fashion (graph: EM Sovereign spread over USTs). FX market volatility has collapsed (graph: avg. GX implied volatility).

C) Michael Cullen, New Zealand finance minister, says investors in NZ are "irrational". "Just how badly do we have to do on the current account before investors notice? … I have to think someone would have to be slightly strange to take a bet on the NZ dollar right now."

I can explain each of these inconsistencies, but not in a self-consistent way. Harvard prof told me about this: "This is complex. But in academe, we can just go to something less complex."

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

2. What are the underlying drivers?

3.5 major structural changes ongoing:

1) Global productivity shock. Secular, long-term in nature.

Communications costs plummeting. Internet users spiking. Less and less capital controls. Transport costs down. More and more regional trade agreements. Greater involvement of new segments of the labor market.

2) Global terms of trade shock. Secular, long-term in nature.

Significant increase in demand (from China, India, etc.) which won't go away.

3) A financial innovation shock. Secular, long-term in nature.

Proliferation of derivative-based instruments that lower entry/exit barriers and facilitate many permutations of risk securitization, tranching, and bundling.

3.5) New marginal price setters. Possibly short-term.

New set of marginal price setters have emerged: central banks, hedge funds, private equity, etc. (Graph: Notional amounts outstanding of credit default swaps have swelled enormously) This is 'half a change' because it's not as yet clear whether it is cyclical or secular

Seemingly different objective functions, time horizons, and guidelines now have an important marginal influence. I'm particularly talking about central banks in emerging countries who have huge influence---China has $1trillian in reserves.

Compare playing the game of Risk. It's a purely probability-driven game. You'll win if you can calculate probabilities. When someone joins the game and behaves irrationally, all the others have to adjust accordingly. In the financial markets, these are the non-commercial players who have entered the marketplace.

Results:

A. Convergence in real economy indicators.

Standard deviation of global growth rate has converged to US growth rates. Global interest rates have also converged to US. US is the global locomotive of growth. It's the Goldilocks economy.

B. Portfolio diversification and reduction in home biases.

 Both assets & liabilities are becoming globalized. Countries own more and more of one another; so does the corporate sector in each country. Over 50% of US treasuries are held outside the US. This is a good thing---it's international risk sharing.

C. Unprecedented global payment imbalances.

US current account balance is at -$800B. Largest deficit any country has ever run in terms of global GDP. In 1995, many countries ran a deficit. Now, the US runs a huge deficit and relatively few other countries do. We've never seen this imbalance. (Shows powerful slide from IMF.)

This is our "vendor-financing relationship" with Asia, aka "Bretton Woods 2". Asia supplies goods (and India supplies services), and Asia also supplies credit for us to buy it. It's like Ford financing your car. It makes great sense for the US consumer, using his house as an ATM---consuming above his income.

Why is Asia doing this? They don’t think about bits of paper. They think about the benefits of being massive export machine: creates jobs, which attracts foreign investors. Easier to import FDI (foreign direct investment). Lastly, once you acquire market share, it's hard to lose it.

This all turbo-charges int'l reserve growth among oil exporters. They're accumulating even more reserves than Asia.

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

3. What are the implications?

This is a "stable disequilibrium" (quoting PIMCO)

No agreement on lifespan of this. How long will Asia take bits of paper for their goods---when the bits of paper will lose value?

3 views:

A. Optimists ("new paradigm school") looks at: US productivity gains, demographics, entrepreneurship. Maturation of key emerging economies. Gradual resurgence of Japan/Europe.

B. Cynics. Others believe we're on verge of large disruption: size of huge current account deficit, leverage in financial sector, bubble in housing market, risk of a change in the asset preferences of holders of US financial assets.

C. All the views in the 'muddled middle': those noting 'dark matter' (measurement error), enhanced policy credibility, system self-insurance.

This is a frightening slide. Endowments and foundations have to focus on long term, and there are question marks about what the long term is.

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-

Future is function of four factors:

-         Developments in the US in private consumption. Will consumption soft- or hard-land?

-         Developments in surplus countries, including relative asset preferences and 'managing success' (suddenly being in surplus). Finance minister told him: "Managing success is more difficult than managing a crisis."

-         Interactions between the two. They're two sides of an income statement.

-         Prospects for orderly re-alignment of exogenous and endogenous liquidity.

The challenges for policy reaction functions in advanced economies:

- navigate payment imbalances

- understand and adjust to structural changes

- counter protectionist tendencies

The challenges for emerging economies:

They're used to running a deficit---that's what the textbooks suggest. How do they handle this?

Theoretical orderly global solution exists, and is discussed at every G7

+ Rebalance of US economy—US must consume less.

+ Structural reform in Euroland and Japan to grow faster.

+ Asia has to consume more.

+ Oil exporters provide cheap financing in the interim.

BUT: if any one of these parties moves first, they're hurt. This is a classic game theory dilemma/prisoner's dilemma. So without coordination, it's best not to move.

G7 can't act as a coordinating body because it excludes the countries in massive surplus. So we rely on IMF and other multilateral institutions.

At a time when int'l coordination is essential, legitimacy of multilateral institutions is being questioned due to: lack of representation, governance, resources etc.

Business models have to adopt: new two-way flows between advanced & emerging economies. Regional and local product development.

Just 5 years ago we thought emerging economies were a destination for capital; now they're the major source of capital.

Most companies have outperformed lately because growth outside US has been stronger than envisioned.

Investment management is about 3 things: asset allocation, investment vehicles, and risk management. Not very complex.

Key questions for investors:

-         striking the right balance between forces of economic synchronization and de-coupling.

-         Portfolio positioning in the context of binary medium-term outcomes

-         Appropriately handle the internationalization of investment management

-         Dealing with asset class fluidity and correlation changes

-         Ensuring value for money in accessing investment vehicles

-         Navigating organizational challenges.

Buying real estate in Mexico is very different than buying bonds there.

Traditional classifications no longer make sense.

How to ensure value? Fees get very high when everyone wants a certain asset.

Risk management is going to be increasingly important. We're rebuilding and reinventing the institution of HMC.

CONCLUSION

These signals are meaningful. Global economic convergence has continued while fluidity of int'l monetary system is increasing.

At public sector level, we need to test and retest robustness of nat'l policy reaction functions and global governance.

Q&A

Q: As you know there are 8,000 hedge funds. Is this a problem?

Hedge funds are not asset classes; they are a means of managing investments. They do 2 things different from tradition: a) they leverage, b) they can go short and long. Like everything else, if taken to extreme, these actions can cause problems.

3 distinctions:

- Are they a threat to stability? Amaranth at least was not, despite losing more money than LTCM.

- Are they a threat to the small uninformed investor? Those investors shouldn't be in them.

- Do they potentially contaminate economic relationships? Are they a level playing field?

Q: Insights on Africa, Egypt? On carry trades?

Most crowded carry trades in April were in NZ, Turkey—all funded by yen. You could borrow at 1%, get 10-17% returns in NZ, Turkey. Then certain markets dropped by 20-30%---and nothing blew up. Carry trades have tendency to become more crowded.

Q: How do you handle risk management?

     1)      Buy cheap insurance on fat tails

2)      Analyze correlation of exposures across and within asset classes.

Q: What is optimal compensation scheme for outside funds and for your own employees?

Several new hedge funds have overly generous comp schemes, and we tend to avoid them.

For our own employees, we have clawback provision. If they don't consistently outrperform, the carry they earn is clawed back.

Q: Aren't US markets much more sophisticated? US markets providing a service to global economy.

There's a view that Asians don't trust their own markets. So they delegate capital allocation to the West. I think that's an outcome, and not a bad outcome, but it wasn't by design.

Part of the orderly solution is for emerging markets to develop more sophisticated capital markets.

At some point Asian populations will ask for bridges, schools, etc.

Q: Opinion on china?

HMC has increased the emerging markets allocation by $1b+.

One of the reasons managing success is tough is that the typical emerging market is not used to deal with large capital inflow.

How do you get out of overinvestment? Because China is mostly a closed economy, you can work off overinvestment over years, unlike the typical boom/bust of Thailand, Argentina, etc.

Q: Hedge funds account for ½ of NYSE volume. Doesn’t that call for regulation?

Have not thought about this.

Q: Where are you investing?

We think US fixed income market is near a secular top.

We think US economy will soft-land, either for endogenous reasons (housing market corrects but corporate investment picks up) or will soft-land because of enormous monetary market flexibility (Fed could cut rates). It's hard to imagine foreign markets doing better than US when US goes into recession. So there's no safe refuge.

If world goes into recession, you want a liquid market. We think of recession as a risk under our 'fat-tail' insurance.

 

Mohamed A. El-Erian, President & CEO of Harvard endowment, on the global economy http://www.circleofexperts.com/blog/PermaLink.html?guid=366 http://www.circleofexperts.com/blog/Mohamed+A+ElErian+President+CEO+Of+Harvard+Endowment+On+The+Global+Economy.html Wed, 18 Oct 2006 09:11:44 GMT </meta> <meta content="Microsoft Word 11 (filtered)" name=Generator> > <div class=Section1> <p class=MsoNormal> I went to a very worthwhile talk last night at the Harvard Club by <a href="http://www.news.harvard.edu/gazette/daily/2005/10/14-mgt.html">Mohamed A. El-Erian</a>, President and CEO, Harvard Management Company, which manages the $29 billion Harvard endowment (as of 6/30/06). The endowment has had consistently impressive <a href="http://www.news.harvard.edu/gazette/2006/09.21/99-endowment.html">performance</a>. As background, I've posted on the blog below an article I wrote for the <a href="http://www.harbus.org/">Harbus</a>, the HBS school newspaper, back in 1998, profiling <a href="http://circleofexperts.com/blog/2006/10/18/profile-of-jack-meyer-harvard-management-company-president">Jack Meyer</a> (Dr. El-Erian's predecessor). </p> <p class=MsoNormal> One of the marks of a sophisticated thinker is that he can make complex subjects seem simple. The global economy is certainly complex (especially now) but this talk boils it down to just a few key issues and tensions. </p> <p class=MsoNormal> My notes: </p> <p class=MsoNormal> <b>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; "Navigating a Fluid World"</b> </p> <p class=MsoNormal style="TEXT-ALIGN: center" align=center> <b>Presentation to the Harvard Club of New York</b> </p> <p class=MsoNormal style="TEXT-ALIGN: center" align=center> <b>Mohamed A. El-Erian, President and CEO, Harvard Management Company</b> </p> <p class=MsoNormal style="TEXT-ALIGN: center" align=center> <b>and Faculty Member at Harvard Business School</b> </p> <p class=MsoNormal style="TEXT-ALIGN: center" align=center> <b>Oct. 17, 2006</b> </p> <p class=MsoNormal> You're obviously not Mets fans or else you wouldn't be here. </p> <p class=MsoNormal> Will discuss impact of global economy on investing. Internally, we've gone back to 1<sup>st</sup> principles as we rebuild HMC. </p> <p class=MsoNormal> Signals from the market are increasingly inconsistent (i.e., confusing). We've come across issues that are systemic in nature, uncertain in impact. And we have lots of questions. Some will think we don’t know the answers. Some will think we know but aren't telling. And you're both right. </p> <p class=MsoNormal> Market signals which used to appear sequentially inconsistent now appear simultaneously so. So very tempting to dismiss them as noise. Don't dismiss them as noise---they're consequential in terms of info content. </p> <p class=MsoNormal> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- </p> <p class=MsoNormal> 1<b>. What are the markets trying to tell us?</b> </p> <p class=MsoNormal> Signals have gone from being sequentially inconsistent to being simultaneously inconsistent. 3 examples: </p> <p class=MsoNormal> <b>A) In the world's most liquid markets, are US equities or US bonds correct?</b> Equity market is doing well. Suggests vibrant economy. But bond market suggests economy is slowing down very quickly. Last week, both shape &amp; level of interest rates suggest something more sinister than a soft landing. </p> <p class=MsoNormal> <b>B) What to make of the unusual dispersion in interest rate forecasts in the context of subdued volatility?</b> Some suggest by Dec. 07, Fed will cut rates to 4%. Some suggest Fed will raise rates to 6%. I've never seen such a range in terns of magnitude and sign. Reason: we're at an inflection point in the economy. </p> <p class=MsoNormal style="MARGIN-LEFT: 0.75in; TEXT-INDENT: -0.25in"> <span style="FONT-FAMILY: 'Courier New'">o</span><span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Market volatility has declined (VIX index). Intra-market differentiation in developed markets has also declined (graph: FTSE All-europe valuation dispersion). EM Credit spreads have tightened in a quasi-linear fashion (graph: EM Sovereign spread over USTs). FX market volatility has collapsed (graph: avg. GX implied volatility). </p> <p class=MsoNormal> <b>C) Michael Cullen, New Zealand finance minister, says investors in NZ are "irrational".</b> "Just how badly do we have to do on the current account before investors notice? … I have to think someone would have to be slightly strange to take a bet on the NZ dollar right now." </p> <p class=MsoNormal> I can explain each of these inconsistencies, but not in a self-consistent way. Harvard prof told me about this: "This is complex. But in academe, we can just go to something less complex." </p> <p class=MsoNormal> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- </p> <p class=MsoNormal> <b>2. What are the underlying drivers?</b> </p> <p class=MsoNormal> 3.5 major structural changes ongoing: </p> <p class=MsoNormal> <b>1) Global productivity shock. Secular, long-term in nature.</b> </p> <p class=MsoNormal> Communications costs plummeting. Internet users spiking. Less and less capital controls. Transport costs down. More and more regional trade agreements. Greater involvement of new segments of the labor market. </p> <p class=MsoNormal> <b>2) Global terms of trade shock. Secular, long-term in nature.</b> </p> <p class=MsoNormal> Significant increase in demand (from China, India, etc.) which won't go away. </p> <p class=MsoNormal> <b>3) A financial innovation shock. Secular, long-term in nature.</b> </p> <p class=MsoNormal> Proliferation of derivative-based instruments that lower entry/exit barriers and facilitate many permutations of risk securitization, tranching, and bundling. </p> <p class=MsoNormal> <b>3.5) New marginal price setters. Possibly short-term. </b> </p> <p class=MsoNormal> New set of marginal price setters have emerged: central banks, hedge funds, private equity, etc. (Graph: Notional amounts outstanding of credit default swaps have swelled enormously) This is 'half a change' because it's not as yet clear whether it is cyclical or secular </p> <p class=MsoNormal> Seemingly different objective functions, time horizons, and guidelines now have an important marginal influence. I'm particularly talking about central banks in emerging countries who have huge influence---China has $1trillian in reserves. </p> <p class=MsoNormal> Compare playing the game of Risk. It's a purely probability-driven game. You'll win if you can calculate probabilities. When someone joins the game and behaves irrationally, all the others have to adjust accordingly. In the financial markets, these are the non-commercial players who have entered the marketplace. </p> <p class=MsoNormal> Results: </p> <p class=MsoNormal> <b>A. Convergence in real economy indicators</b>. </p> <p class=MsoNormal> Standard deviation of global growth rate has converged to US growth rates. Global interest rates have also converged to US. US is the global locomotive of growth. It's the Goldilocks economy. </p> <p class=MsoNormal> <b>B. Portfolio diversification and reduction in home biases.</b> </p> <p class=MsoNormal> <b>&nbsp;</b>Both assets &amp; liabilities are becoming globalized. Countries own more and more of one another; so does the corporate sector in each country. Over 50% of US treasuries are held outside the US. This is a good thing---it's international risk sharing. </p> <p class=MsoNormal> <b>C. Unprecedented global payment imbalances. </b> </p> <p class=MsoNormal> US current account balance is at -$800B. Largest deficit any country has ever run in terms of global GDP. In 1995, many countries ran a deficit. Now, the US runs a huge deficit and relatively few other countries do. We've never seen this imbalance. (Shows powerful slide from IMF.) </p> <p class=MsoNormal> This is our "vendor-financing relationship" with Asia, aka "Bretton Woods 2". Asia supplies goods (and India supplies services), and Asia also supplies credit for us to buy it. It's like Ford financing your car. It makes great sense for the US consumer, using his house as an ATM---consuming above his income. </p> <p class=MsoNormal> Why is Asia doing this? They don’t think about bits of paper. They think about the benefits of being massive export machine: creates jobs, which attracts foreign investors. Easier to import FDI (foreign direct investment). Lastly, once you acquire market share, it's hard to lose it. </p> <p class=MsoNormal> This all turbo-charges int'l reserve growth among oil exporters. They're accumulating even more reserves than Asia. </p> <p class=MsoNormal> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- </p> <p class=MsoNormal> <b>3. What are the implications?</b> </p> <p class=MsoNormal> This is a "stable disequilibrium" (quoting PIMCO) </p> <p class=MsoNormal> No agreement on lifespan of this. How long will Asia take bits of paper for their goods---when the bits of paper will lose value? </p> <p class=MsoNormal> 3 views: </p> <p class=MsoNormal> A. <b>Optimists</b> ("new paradigm school") looks at: US productivity gains, demographics, entrepreneurship. Maturation of key emerging economies. Gradual resurgence of Japan/Europe. </p> <p class=MsoNormal> B. <b>Cynics.</b> Others believe we're on verge of large disruption: size of huge current account deficit, leverage in financial sector, bubble in housing market, risk of a change in the asset preferences of holders of US financial assets. </p> <p class=MsoNormal> C. <b>All the views in the 'muddled middle':</b> those noting 'dark matter' (measurement error), enhanced policy credibility, system self-insurance. </p> <p class=MsoNormal> This is a frightening slide. Endowments and foundations have to focus on long term, and there are question marks about what the long term is. </p> <p class=MsoNormal> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=- </p> <p class=MsoNormal> <b>Future is function of four factors:</b> </p> <p class=MsoNormal> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span><b>Developments in the US in private consumption.</b> Will consumption soft- or hard-land? </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span><b>Developments in surplus countries</b>, including relative asset preferences and 'managing success' (suddenly being in surplus). Finance minister told him: "Managing success is more difficult than managing a crisis." </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span><b>Interactions between the two.</b> They're two sides of an income statement. </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span><b>Prospects for orderly re-alignment of exogenous and endogenous liquidity. </b> </p> <p class=MsoNormal> <b>The challenges for policy reaction functions in advanced economies: </b> </p> <p class=MsoNormal> - navigate payment imbalances </p> <p class=MsoNormal> - understand and adjust to structural changes </p> <p class=MsoNormal> - counter protectionist tendencies </p> <p class=MsoNormal> <b>The challenges for emerging economies:</b> </p> <p class=MsoNormal> They're used to running a deficit---that's what the textbooks suggest. How do they handle this? </p> <p class=MsoNormal> <b>Theoretical orderly global solution exists, and is discussed at every G7 </b> </p> <p class=MsoNormal> + Rebalance of US economy—US must consume less. </p> <p class=MsoNormal> + Structural reform in Euroland and Japan to grow faster. </p> <p class=MsoNormal> + Asia has to consume more. </p> <p class=MsoNormal> + Oil exporters provide cheap financing in the interim. </p> <p class=MsoNormal> BUT: if any one of these parties moves first, they're hurt. This is a classic game theory dilemma/prisoner's dilemma. So without coordination, it's best not to move. </p> <p class=MsoNormal> G7 can't act as a coordinating body because it excludes the countries in massive surplus. So we rely on IMF and other multilateral institutions. </p> <p class=MsoNormal> At a time when int'l coordination is essential, legitimacy of multilateral institutions is being questioned due to: lack of representation, governance, resources etc. </p> <p class=MsoNormal> Business models have to adopt: new two-way flows between advanced &amp; emerging economies. Regional and local product development. </p> <p class=MsoNormal> Just 5 years ago we thought emerging economies were a destination for capital; now they're the major source of capital. </p> <p class=MsoNormal> Most companies have outperformed lately because growth outside US has been stronger than envisioned. </p> <p class=MsoNormal> Investment management is about 3 things: asset allocation, investment vehicles, and risk management. Not very complex. </p> <p class=MsoNormal> Key questions for investors: </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>striking the right balance between forces of economic synchronization and de-coupling. </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Portfolio positioning in the context of binary medium-term outcomes </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Appropriately handle the internationalization of investment management </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Dealing with asset class fluidity and correlation changes </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Ensuring value for money in accessing investment vehicles </p> <p class=MsoNormal style="MARGIN-LEFT: 0.25in; TEXT-INDENT: -0.25in"> -<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Navigating organizational challenges. </p> <p class=MsoNormal> Buying real estate in Mexico is very different than buying bonds there. </p> <p class=MsoNormal> Traditional classifications no longer make sense. </p> <p class=MsoNormal> How to ensure value? Fees get very high when everyone wants a certain asset. </p> <p class=MsoNormal> Risk management is going to be increasingly important. We're rebuilding and reinventing the institution of HMC. </p> <p class=MsoNormal> <b>CONCLUSION</b> </p> <p class=MsoNormal> These signals are meaningful. Global economic convergence has continued while fluidity of int'l monetary system is increasing. </p> <p class=MsoNormal> At public sector level, we need to test and retest robustness of nat'l policy reaction functions and global governance. </p> <p class=MsoNormal> <b>Q&amp;A</b> </p> <p class=MsoNormal> <b>Q: As you know there are 8,000 hedge funds. Is this a problem? </b> </p> <p class=MsoNormal> Hedge funds are not asset classes; they are a means of managing investments. They do 2 things different from tradition: a) they leverage, b) they can go short and long. Like everything else, if taken to extreme, these actions can cause problems. </p> <p class=MsoNormal> 3 distinctions: </p> <p class=MsoNormal> - Are they a threat to stability? Amaranth at least was not, despite losing more money than LTCM. </p> <p class=MsoNormal> - Are they a threat to the small uninformed investor? Those investors shouldn't be in them. </p> <p class=MsoNormal> - Do they potentially contaminate economic relationships? Are they a level playing field? </p> <p class=MsoNormal> <b>Q: Insights on Africa, Egypt? On carry trades?</b> </p> <p class=MsoNormal> Most crowded carry trades in April were in NZ, Turkey—all funded by yen. You could borrow at 1%, get 10-17% returns in NZ, Turkey. Then certain markets dropped by 20-30%---and nothing blew up. Carry trades have tendency to become more crowded. </p> <p class=MsoNormal> <b>Q: How do you handle risk management?</b> </p> <p class=MsoNormal> &nbsp;&nbsp;&nbsp;&nbsp; 1)<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Buy cheap insurance on fat tails </p> <p class=MsoNormal style="MARGIN-LEFT: 0.5in; TEXT-INDENT: -0.25in"> 2)<span style="FONT: 7pt 'Times New Roman'">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Analyze correlation of exposures across and within asset classes. </p> <p class=MsoNormal> <b>Q: What is optimal compensation scheme for outside funds and for your own employees?</b> </p> <p class=MsoNormal> Several new hedge funds have overly generous comp schemes, and we tend to avoid them. </p> <p class=MsoNormal> For our own employees, we have clawback provision. If they don't consistently outrperform, the carry they earn is clawed back. </p> <p class=MsoNormal> <b>Q: Aren't US markets much more sophisticated? US markets providing a service to global economy. </b> </p> <p class=MsoNormal> There's a view that Asians don't trust their own markets. So they delegate capital allocation to the West. I think that's an outcome, and not a bad outcome, but it wasn't by design. </p> <p class=MsoNormal> Part of the orderly solution is for emerging markets to develop more sophisticated capital markets. </p> <p class=MsoNormal> At some point Asian populations will ask for bridges, schools, etc. </p> <p class=MsoNormal> <b>Q: Opinion on china?</b> </p> <p class=MsoNormal> HMC has increased the emerging markets allocation by $1b+. </p> <p class=MsoNormal> One of the reasons managing success is tough is that the typical emerging market is not used to deal with large capital inflow. </p> <p class=MsoNormal> How do you get out of overinvestment? Because China is mostly a closed economy, you can work off overinvestment over years, unlike the typical boom/bust of Thailand, Argentina, etc. </p> <p class=MsoNormal> <b>Q: Hedge funds account for ½ of NYSE volume. Doesn’t that call for regulation?</b> </p> <p class=MsoNormal> Have not thought about this<b>.</b> </p> <p class=MsoNormal> <b>Q: Where are you investing?</b> </p> <p class=MsoNormal> We think US fixed income market is near a secular top. </p> <p class=MsoNormal> We think US economy will soft-land, either for endogenous reasons (housing market corrects but corporate investment picks up) or will soft-land because of enormous monetary market flexibility (Fed could cut rates). It's hard to imagine foreign markets doing better than US when US goes into recession. So there's no safe refuge. </p> <p class=MsoNormal> If world goes into recession, you want a liquid market. We think of recession as a risk under our 'fat-tail' insurance. </p> <p class=MsoNormal> &nbsp; </p> </div> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=366" /> http://www.circleofexperts.com/blog/CommentView.html?guid=366 General Leadership and Management Private Equity Investing Public Markets Investing Securities Research
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As background for my next blog post about Dr. Mohamed El-Erian (current President and CEO of Harvard Management Company), I've attached below an article I wrote for the Harvard Business School newspaper (the Harbus) back on July 7, 1997.

The Financial Future of Harvard is in HBS Hands

"Harvard Management Company is the only first-class investment institution owned by a nonprofit." Bold words from Jack Meyer, MBA 1969, President of Harvard Management Company, but perhaps justified by impressive investment performance.

Harvard has the largest endowment of any private university in the USA: $9.4 billion. Harvard Management Company (HMC) is a wholly owned subsidiary of Harvard University, founded in 1974 to manage the University’s endowment, pension assets, working capital, and deferred giving accounts. A Board of Directors, appointed by the President and Fellows of the University, governs HMC and its 160-person staff. The Board is comprised of professional financiers, including HBS Finance Professor Jay Light and Goldman Sachs partner Eric Mindich. HMC manages a total of $11.7 billion, including Harvard’s pension accounts, gift annuities, and other non-endowment funds.

A Day in the Life of Jack Meyer

Mr. Meyer, 52, graduated from HBS in 1969 as the youngest member of his class. His was the first HBS class to stop wearing a coat and tie. After graduation, he spent three years with Brown Brother Harriman. Since 1979, Mr. Meyer has specialized in managing money for nonprofits. Prior to HMC, he was Treasurer and Chief Investment Officer of the Rockefeller Foundation ($2B endowment). Before Rockefeller he was Deputy Controller of New York City, where he managed $20B. He lives in Cambridge with his wife and two children.

In a wide-ranging interview, Meyer said that the most important parts of his job are "to find the right people, motivate them properly, and maintain the HMC culture." Less important than the people tasks, he is responsible for tactical asset allocation, which generally does not fluctuate widely.

Meyer commented that, every year, it becomes harder to attract and retain top investment talent, both portfolio managers and back office staff. In a competitive marketplace, many employees are attracted to HMC’s Boston location. Many of his team are also attracted to the strictly defined HMC compensation system. According to Meyer, employees at many money management firms are compensated based in part on ambiguous criteria, such as how much the President likes the employee. At HMC, Meyer says that the compensation system is unambiguously pay-for-performance.

Meyer observed that HMC is not large enough to train people, so he focuses on recruiting people with significant asset management experience. HMC does not typically hire new MBAs.

Controversial Issue: Compensation

By far the most controversial issue involving HMC is management compensation. HMC’s compensation data is available in its federal tax filing. Fiscal 1996 compensation for the 160-person HMC staff tripled to $57 million, up from $16 million in 1995. The top ten highest paid people at Harvard are all HMC employees. Jonathan S. Jacobson, a domestic equity manager, earned $4.7 million in 1996. Meyer earned $897,523, a 25% drop from $1.2 million in 1995.

By comparison, Harvard’s top professors can earn $176,000 (excluding outside income, such as consulting fees). Because HMC managers earn so much more than President Rudenstine, or even HBS professors, they receive some uncomfortable publicity every fiscal year. Mr. Meyer commented that this publicity is by far the least enjoyable aspect of his job. The Boston Globe’s observation was that the high salaries "have created considerable angst within the Harvard community."

The HMC Board compensates Meyer and his staff based on their performance against the Policy Portfolio. As Meyer observed, other universities are also paying large salaries to money managers. The key difference is that high-paid people like Mr. Jacobson work directly for Harvard, so their salaries are public knowledge. A million-dollar-a-year manager at Fidelity may be managing money for Princeton, but her salary does not appear in Princeton filings because that endowment is primarily externally managed.

Meyer must balance a fundamental tension between the University’s very long-term perspective and the short-term perspective of most money managers. In order to align the interests of the managers and the University, compensation is split into a small base salary and an incentive bonus, based on performance relative to benchmark. This bonus can be either positive or negative.

When a manager earns a significant bonus, the bonus is held in escrow for up to 3 years and subject to "clawback". When returns are below benchmark, the manager’s bonus is docked from the money held in escrow. Certain managers have earned negative compensation in some years, as a result of this structure. Meyer’s primary goal: to prevent a manager from earning excess return by taking excessive short-term risk.

Whether it is the compensation system or Meyer’s management skills, the performance numbers indicate that HMC is doing very well.

Impressive Performance

 




Investment Type


Target Percentage of Portfolio



5-Year CAGR (7/1/91-6/30/96)

Benchmark Policy Portfolio CAGR
(7/1/91-6/30/96)

Domestic equities

36%

20.3%

15.4%

Foreign equities

15

11.0

10.6

Emerging markets

9

23.3

12.0

High-yield

2

19.6

14.5

Commodities

3

7.0

13.3

Total Equities

65

 

 

 

 

 

 

Real estate

7

6.3

(3.5)

Private equities

15

23.5

24.0

Total private

22

 

 

 

 

 

 

Domestic bonds

13

12.8

8.1

Foreign bonds

5

15.6

12.4

Total fixed

18

 

 

 

 

 

 

Cash*

(5)

 

 

Total

100%

16.1%

13.7%

___________________________________________________________________________

 

*Extensive use of futures causes cash to appear as a negative percentage of total asset value.

The HMC portfolio is diversified across both asset class and industry. HMC’s target portfolio includes a higher allocation to foreign securities and commodities and a lower allocation to domestic fixed-income assets than the typical institutional fund. The fund holds roughly 5,000 different securities.

In the past five years, each asset class has outperformed its benchmark, with the exception of commodities and private equity investments. Among 82 comparable large funds, Harvard ranked #2 behind Yale (which manages 90% of its money externally). Meyer observed, "No other investment manager tries aggressively (and successfully) to add value across as broad an array of asset classes as HMC." In the past five years, since Mr. Meyer joined Harvard in September 1990, the endowment has returned 16.1% annualized after fees. An appropriate comparison for total HMC performance is the performance of comparable large trusts. The "Trust Universe Comparison Service" median total return for Master Trust Funds was 11.1%.

For Fiscal 1996 (which ended June 30), the Endowment outperformed the Policy Portfolio by 3.7%. Approximately 0.3% of that 3.7% was due to successful tactical asset allocation decisions (under or over weighting asset classes). The remaining 3.4% was due to outperformance within asset classes.

Harvard is unique among major universities in managing 88% of its endowment internally. Most major universities externally manage close to 90-100% of their endowment. According to Harvard President Neil Rudenstine, HMC manages money for substantially less than Harvard would have to pay outside managers.

Meyer’s goal is to keep pace with or outperform the growth in university expenses each year. HMC disburses 4.5%-5.0% of the fund’s capital value each year. Those disbursements accounted for 24% of the University’s 1996 revenues.

When HBS or any other Harvard department receives an alumni donation, it has two options: either it can invest in a money market fund for working capital purposes, or it can invest with HMC. The primary rationale for this aggregation of funds is that HMC achieves economies of scale by working with the funds of all the Harvard departments combined. As of June 30, 1996, HBS had an endowment of $571 M, ranking it third among all Harvard departments, after the Faculty of Arts and Sciences ($3.8 B) and the Medical School ($1.0B).

Investment Philosophy

In maximizing returns, Meyer takes full advantage of Harvard’s unique position. The University’s credit is rated AAA, because of its highly liquid endowment and well-diversified sources of income (grants, tuition, endowment, and business operations such as the HBS Publishing Corporation.)

The endowment’s large size facilitates hedged transactions. As a nonprofit, HMC only has to pay trading fees, not capital gains taxes. In most cases, HMC can reclaim any withholding tax deducted on dividend payments. Whether the school receives money as a capital gain or as income is irrelevant.

Unlike many institutional investors, Harvard’s long-term perspective allows it to invest in illiquid, volatile investments, such as venture capital funds and emerging market shares and bonds. Many private equity investors enjoy having Harvard as part of a syndicate, because of the school’s prestige.

Lastly, HMC can put money into an extremely broad range of deals, because of its flexibility in both capital type and size. One limitation: HMC generally does not pursue transactions that are subject to high start-up, technology, or exploration risk.

Meyer focuses on finding market anomalies and taking large, hedged, leveraged bets on them. A comparable for-profit fund could not trade as frequently as does HMC, because it would have to pay capital gains taxes on every profitable transaction.

A classic arbitrage maneuver typical for HMC: it buys a Japanese bond that looks undervalued relative to the bond’s futures, and simultaneously sells the futures. HMC’s expectation is that the two securities will converge in value; the bond will rise and the future will drop. T

heoretically, this arrangement allows for zero market risk. Although HMC’s percentage profit may equal only one basis point, its dollar profit will be significant because HMC can invest such a large sum in the trade.

HMC is a highly sophisticated user of leverage and of the derivatives market. As of June 30, 1996, HMC was long $16.2 billion and short $14.5 billion in total fixed-income market exposure. By comparison, its fixed income balance sheet position in cash was long $7.5 billion and short only $0.6 billion.

 

Profile of Jack Meyer, (former) Harvard Management Company President http://www.circleofexperts.com/blog/PermaLink.html?guid=365 http://www.circleofexperts.com/blog/Profile+Of+Jack+Meyer+Former+Harvard+Management+Company+President.html Wed, 18 Oct 2006 09:06:13 GMT <div class=Section1> <p class=MsoNormal> As background for my next blog post about Dr. Mohamed El-Erian (current President and CEO of Harvard Management Company), I've attached below an article I wrote for the Harvard Business School newspaper (the Harbus) back on July 7, 1997. </p> <p class=MsoNormal style="TEXT-ALIGN: center" align=center> <b>The Financial Future of Harvard is in HBS Hands</b> </p> <p class=MsoNormal style="TEXT-ALIGN: center" align=center> "Harvard Management Company is the only first-class investment institution owned by a nonprofit." Bold words from Jack Meyer, MBA 1969, President of Harvard Management Company, but perhaps justified by impressive investment performance. </p> <p class=MsoHeader> Harvard has the largest endowment of any private university in the USA: $9.4 billion. Harvard Management Company (HMC) is a wholly owned subsidiary of Harvard University, founded in 1974 to manage the University’s endowment, pension assets, working capital, and deferred giving accounts. A Board of Directors, appointed by the President and Fellows of the University, governs HMC and its 160-person staff. The Board is comprised of professional financiers, including HBS Finance Professor Jay Light and Goldman Sachs partner Eric Mindich. HMC manages a total of $11.7 billion, including Harvard’s pension accounts, gift annuities, and other non-endowment funds. </p> <h1>A Day in the Life of Jack Meyer </h1> <p class=MsoNormal> Mr. Meyer, 52, graduated from HBS in 1969 as the youngest member of his class. His was the first HBS class to stop wearing a coat and tie. After graduation, he spent three years with Brown Brother Harriman. Since 1979, Mr. Meyer has specialized in managing money for nonprofits. Prior to HMC, he was Treasurer and Chief Investment Officer of the Rockefeller Foundation ($2B endowment). Before Rockefeller he was Deputy Controller of New York City, where he managed $20B. He lives in Cambridge with his wife and two children. </p> <p class=MsoNormal> In a wide-ranging interview, Meyer said that the most important parts of his job are "to find the right people, motivate them properly, and maintain the HMC culture." Less important than the people tasks, he is responsible for tactical asset allocation, which generally does not fluctuate widely. </p> <p class=MsoNormal> Meyer commented that, every year, it becomes harder to attract and retain top investment talent, both portfolio managers and back office staff. In a competitive marketplace, many employees are attracted to HMC’s Boston location. Many of his team are also attracted to the strictly defined HMC compensation system. According to Meyer, employees at many money management firms are compensated based in part on ambiguous criteria, such as how much the President likes the employee. At HMC, Meyer says that the compensation system is unambiguously pay-for-performance. </p> <p class=MsoNormal> Meyer observed that HMC is not large enough to train people, so he focuses on recruiting people with significant asset management experience. HMC does not typically hire new MBAs. </p> <h1>Controversial Issue: Compensation </h1> <p class=MsoHeader> By far the most controversial issue involving HMC is management compensation. HMC’s compensation data is available in its federal tax filing. Fiscal 1996 compensation for the 160-person HMC staff tripled to $57 million, up from $16 million in 1995. The top ten highest paid people at Harvard are all HMC employees. Jonathan S. Jacobson, a domestic equity manager, earned $4.7 million in 1996. Meyer earned $897,523, a 25% drop from $1.2 million in 1995. </p> <p class=MsoHeader> By comparison, Harvard’s top professors can earn $176,000 (excluding outside income, such as consulting fees). Because HMC managers earn so much more than President Rudenstine, or even HBS professors, they receive some uncomfortable publicity every fiscal year. Mr. Meyer commented that this publicity is by far the least enjoyable aspect of his job. The <i>Boston Globe</i>’s observation was that the high salaries "have created considerable angst within the Harvard community." </p> <p class=MsoHeader> The HMC Board compensates Meyer and his staff based on their performance against the Policy Portfolio. As Meyer observed, other universities are also paying large salaries to money managers. The key difference is that high-paid people like Mr. Jacobson work directly for Harvard, so their salaries are public knowledge. A million-dollar-a-year manager at Fidelity may be managing money for Princeton, but her salary does not appear in Princeton filings because that endowment is primarily externally managed. </p> <p class=MsoNormal> Meyer must balance a fundamental tension between the University’s very long-term perspective and the short-term perspective of most money managers. In order to align the interests of the managers and the University, compensation is split into a small base salary and an incentive bonus, based on performance relative to benchmark. This bonus can be either positive or negative. </p> <p class=MsoNormal> When a manager earns a significant bonus, the bonus is held in escrow for up to 3 years and subject to "clawback". When returns are below benchmark, the manager’s bonus is docked from the money held in escrow. Certain managers have earned negative compensation in some years, as a result of this structure. Meyer’s primary goal: to prevent a manager from earning excess return by taking excessive short-term risk. </p> <p class=MsoNormal> Whether it is the compensation system or Meyer’s management skills, the performance numbers indicate that HMC is doing very well. </p> <h1>Impressive Performance </h1> <p class=MsoNormal> &nbsp; </p> <table class=MsoNormalTable cellspacing=0 cellpadding=0 border=0> <tbody> <tr> <td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 5.4pt; BORDER-TOP: medium none; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 117pt; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in; TEXT-ALIGN: center" align=center> <b> <br> <br> <br> Investment Type</b> </p> </td> <td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 5.4pt; BORDER-TOP: medium none; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 96pt; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in; TEXT-ALIGN: center" align=center> <b> <br> Target Percentage of Portfolio</b> </p> </td> <td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 5.4pt; BORDER-TOP: medium none; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 96pt; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in; TEXT-ALIGN: center" align=center> <b> <br> <br> 5-Year CAGR (7/1/91-6/30/96)</b> </p> </td> <td style="BORDER-RIGHT: medium none; PADDING-RIGHT: 5.4pt; BORDER-TOP: medium none; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; BORDER-LEFT: medium none; WIDTH: 96pt; PADDING-TOP: 0in; BORDER-BOTTOM: windowtext 1pt solid" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in; TEXT-ALIGN: center" align=center> <b>Benchmark Policy Portfolio CAGR <br> (7/1/91-6/30/96)</b> </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Domestic equities </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 36% </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 20.3% </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 15.4% </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Foreign equities </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 15 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 11.0 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 10.6 </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Emerging markets </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 9 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 23.3 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 12.0 </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> High-yield </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 2 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 19.6 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 14.5 </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Commodities </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> <u>3</u> </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 7.0 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 13.3 </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Total Equities </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 65 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Real estate </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 7 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 6.3 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> (3.5) </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Private equities </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> <u>15</u> </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 23.5 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 24.0 </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Total private </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 22 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Domestic bonds </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 13 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 12.8 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 8.1 </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Foreign bonds </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> <u>5</u> </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 15.6 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 12.4 </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Total fixed </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 18 </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> <u><span style="TEXT-DECORATION: none"></span></u>&nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Cash* </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> <u>(5)</u> </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> </td> </tr> <tr> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 117pt; PADDING-TOP: 0in" valign=top width=156> <p class=MsoHeader style="MARGIN-TOP: 0in"> Total </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 100% </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 16.1% </p> </td> <td style="PADDING-RIGHT: 5.4pt; PADDING-LEFT: 5.4pt; PADDING-BOTTOM: 0in; WIDTH: 96pt; PADDING-TOP: 0in" valign=top width=128> <p class=MsoHeader style="MARGIN-TOP: 0in"> 13.7% </p> </td> </tr> </tbody> </table> <p class=MsoHeader style="MARGIN-TOP: 0in"> ___________________________________________________________________________ </p> <p class=MsoHeader style="MARGIN-TOP: 0in"> &nbsp; </p> <p class=MsoHeader style="MARGIN-TOP: 0in"> *Extensive use of futures causes cash to appear as a negative percentage of total asset value. </p> <p class=MsoHeader> The HMC portfolio is diversified across both asset class and industry. HMC’s target portfolio includes a higher allocation to foreign securities and commodities and a lower allocation to domestic fixed-income assets than the typical institutional fund. The fund holds roughly 5,000 different securities. </p> <p class=MsoHeader> In the past five years, each asset class has outperformed its benchmark, with the exception of commodities and private equity investments. Among 82 comparable large funds, Harvard ranked #2 behind Yale (which manages 90% of its money externally). Meyer observed, "No other investment manager tries aggressively (and successfully) to add value across as broad an array of asset classes as HMC." In the past five years, since Mr. Meyer joined Harvard in September 1990, the endowment has returned 16.1% annualized after fees. An appropriate comparison for total HMC performance is the performance of comparable large trusts. The "Trust Universe Comparison Service" median total return for Master Trust Funds was 11.1%. </p> <p class=MsoHeader> For Fiscal 1996 (which ended June 30), the Endowment outperformed the Policy Portfolio by 3.7%. Approximately 0.3% of that 3.7% was due to successful tactical asset allocation decisions (under or over weighting asset classes). The remaining 3.4% was due to outperformance within asset classes. </p> <p class=MsoHeader> Harvard is unique among major universities in managing 88% of its endowment internally. Most major universities externally manage close to 90-100% of their endowment. According to Harvard President Neil Rudenstine, HMC manages money for substantially less than Harvard would have to pay outside managers. </p> <p class=MsoHeader> Meyer’s goal is to keep pace with or outperform the growth in university expenses each year. HMC disburses 4.5%-5.0% of the fund’s capital value each year. Those disbursements accounted for 24% of the University’s 1996 revenues. </p> <p class=MsoHeader> When HBS or any other Harvard department receives an alumni donation, it has two options: either it can invest in a money market fund for working capital purposes, or it can invest with HMC. The primary rationale for this aggregation of funds is that HMC achieves economies of scale by working with the funds of all the Harvard departments combined. As of June 30, 1996, HBS had an endowment of $571&nbsp;M, ranking it third among all Harvard departments, after the Faculty of Arts and Sciences ($3.8 B) and the Medical School ($1.0B). </p> <h1>Investment Philosophy </h1> <p class=MsoHeader> In maximizing returns, Meyer takes full advantage of Harvard’s unique position. The University’s credit is rated AAA, because of its highly liquid endowment and well-diversified sources of income (grants, tuition, endowment, and business operations such as the HBS Publishing Corporation.) </p> <p class=MsoHeader> The endowment’s large size facilitates hedged transactions. As a nonprofit, HMC only has to pay trading fees, not capital gains taxes. In most cases, HMC can reclaim any withholding tax deducted on dividend payments. Whether the school receives money as a capital gain or as income is irrelevant. </p> <p class=MsoHeader> Unlike many institutional investors, Harvard’s long-term perspective allows it to invest in illiquid, volatile investments, such as venture capital funds and emerging market shares and bonds. Many private equity investors enjoy having Harvard as part of a syndicate, because of the school’s prestige. </p> <p class=MsoHeader> Lastly, HMC can put money into an extremely broad range of deals, because of its flexibility in both capital type and size. One limitation: HMC generally does not pursue transactions that are subject to high start-up, technology, or exploration risk. </p> <p class=MsoHeader> Meyer focuses on finding market anomalies and taking large, hedged, leveraged bets on them. A comparable for-profit fund could not trade as frequently as does HMC, because it would have to pay capital gains taxes on every profitable transaction. </p> <p class=MsoHeader> A classic arbitrage maneuver typical for HMC: it buys a Japanese bond that looks undervalued relative to the bond’s futures, and simultaneously sells the futures. HMC’s expectation is that the two securities will converge in value; the bond will rise and the future will drop. T </p> <p class=MsoHeader> heoretically, this arrangement allows for zero market risk. Although HMC’s percentage profit may equal only one basis point, its dollar profit will be significant because HMC can invest such a large sum in the trade. </p> <p class=MsoHeader> HMC is a highly sophisticated user of leverage and of the derivatives market. As of June 30, 1996, HMC was long $16.2 billion and short $14.5 billion in total fixed-income market exposure. By comparison, its fixed income balance sheet position in cash was long $7.5 billion and short only $0.6 billion. </p> <p class=MsoNormal> &nbsp; </p> </div> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=365" /> http://www.circleofexperts.com/blog/CommentView.html?guid=365 General Private Equity Investing Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=363 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=363 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=363 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=363 1

Quietly hidden in [Scott] Adams' groundbreaking work is a financial formula so simple it rivals Einstein's E=mc2. In its original form Adams' formula was apparently so heretical and so explosive that no major house would touch it when he proposed publishing it as a one-page book. After initial rejections, he announced sadly that "if God materialized on earth and wrote the secret of the universe on one page, he wouldn't be able to find a publisher" either. ... Fortunately for America's 95 million investors, Adams' secret nine-point formula was finally revealed in "Dilbert and the Way of the Weasels." Notice its simple brilliance in the exact reproduction of his formula:

1. Make a will

2. Pay off your credit cards

3. Get term life insurance if you have a family to support

4. Fund your 401k to the maximum

5. Fund your IRA to the maximum

6. Buy a house if you want to live in a house and can afford it

7. Put six months worth of expenses in a money-market account

8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement

9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio

MarketWatch via TheBigPicture Dilbert deserves the economics Nobel http://www.circleofexperts.com/blog/PermaLink.html?guid=363 http://www.circleofexperts.com/blog/Dilbert+Deserves+The+Economics+Nobel.html Mon, 16 Oct 2006 15:46:17 GMT <blockquote> <p> Quietly hidden in [Scott] Adams' groundbreaking work is a financial formula so simple it rivals Einstein's E=mc2. In its original form Adams' formula was apparently so heretical and so explosive that no major house would touch it when he proposed publishing it as a one-page book. After initial rejections, he announced sadly that "if God materialized on earth and wrote the secret of the universe on one page, he wouldn't be able to find a publisher" either. ... Fortunately for America's 95 million investors, Adams' secret nine-point formula was finally revealed in "Dilbert and the Way of the Weasels." Notice its simple brilliance in the exact reproduction of his formula: </p> <p> 1. Make a will<br> <br> 2. Pay off your credit cards<br> <br> 3. Get term life insurance if you have a family to support<br> <br> 4. Fund your 401k to the maximum<br> <br> 5. Fund your IRA to the maximum<br> <br> 6. Buy a house if you want to live in a house and can afford it<br> <br> 7. Put six months worth of expenses in a money-market account<br> <br> 8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement<br> <br> 9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio<br> </p> </blockquote><a href="http://www.marketwatch.com/news/story/Story.html?guid=%7BBE57F0AA%2D03D9%2D4320%2DBC4D%2D83363B6372F6%7D&amp;siteid=">MarketWatch</a> via <a href="http://bigpicture.typepad.com/comments/2006/10/dilberts_unifie.html">TheBigPicture</a><img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=363" /> http://www.circleofexperts.com/blog/CommentView.html?guid=363 General Leadership and Management Personal Productivity Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=361 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=361 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=361 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=361 Given we're in a reasonably competitive industry, I'm very interested in tools like http://competitio.us/. The basic idea is that it’s a tool for companies (or investors) to keep track of their competitors' actions and features. I'm not sure it's got enough differentiation to be a sustainable business, but as a customer, I like it. Via Techcrunch Track your competition online http://www.circleofexperts.com/blog/PermaLink.html?guid=361 http://www.circleofexperts.com/blog/Track+Your+Competition+Online.html Wed, 11 Oct 2006 12:31:21 GMT Given we're in a reasonably competitive industry, I'm very interested in tools like <a href="http://competitio.us/">http://competitio.us/</a>. The basic idea is that it’s a tool for companies (or investors) to keep track of their competitors' actions and features. I'm not sure it's got enough differentiation to be a sustainable business, but as a customer, I like it. <em>Via <a href="http://www.techcrunch.com/2006/10/04/competitous-track-your-competition-online/">Techcrunch</a></em><img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=361" /> http://www.circleofexperts.com/blog/CommentView.html?guid=361 General Personal Productivity Public Markets Investing Securities Research http://www.circleofexperts.com/blog/Trackback.html?guid=356 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=356 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=356 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=356

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.

The State of Independent Research, at NY Society of Security Analysts http://www.circleofexperts.com/blog/PermaLink.html?guid=356 http://www.circleofexperts.com/blog/The+State+Of+Independent+Research+At+NY+Society+Of+Security+Analysts.html Thu, 21 Sep 2006 09:43:16 GMT <p> Nitron Advisors' COO, <a href="http://www.nitronadvisors.com/management">Scott Lichtman</a>, took detailed notes on last Thursday's panel on "The State of Independent Research" at the <a href="http://www.nyssa.org">New York Society of Security Analysts</a>. </p> <p> 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. </p> <p> NYSSA notes that, <i>'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.'</i> <b></b> </p> <p> <b>SPEAKERS</b> <p> Eric Alexander, President, Institutional Services, Wall Street Access<br> Michael W. Mayhew, Founder and CEO, Integrity Research Associates,LLC<br> Paul Spillane, President and CEO, Soleil Securities Group, Inc.<br> David Teten, CEO, Nitron Advisors<br> David Weild IV, President and CEO,The National Research Exchange<br> CHAIR: Richard G. Lipstein, Boyden Global Executive Search BIOGRAPHIES<br> </p> <b>Eric Alexander</b> is president, institutional services, for Wall Street Access, which offers research and execution to hedge funds and money managers. <p> </p> <p> &nbsp;He is responsible for strategic development of the firm’s research offering, including coverage of mergers and acquisitions, energy, healthcare, and special situations. </p> <p> &nbsp;Previously, he served as director of marketing, and was instrumental in forging strategic relationships that helped the firm grow over the next decade. </p> <p> &nbsp;Prior to joining Wall Street Access, Alexander was a vice president with the public relations firm Burson Marsteller, where his clients included AT&amp;T and American Express. <br> <br> <br> <b>Michael W. Mayhew</b> is founder and CEO of Integrity Research Associates, LLC, a ratings, analysis, and consulting firm for the equity research industry. </p> <p> &nbsp;Prior to founding his firm, he was CEO and president of Garban Information Systems, the financial information division of Garban/United News &amp; Media. </p> <p> &nbsp;Previously, he was director of strategic planning and business development for Standard Poor’s Financial Information Services Group. </p> <p> &nbsp;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. </p> <p> &nbsp;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.<br> </p> <p> &nbsp;<b>Paul Spillane</b>, president and CEO of Soleil Securities Group, Inc., has been in the securities industry for over 25 years. </p> <p> He started his career at Goldman Sachs. where he worked in fixed income, foreign exchange, commodities, futures, and options products. </p> <p> &nbsp;He then moved to Deutsche Bank, serving as managing director and head of global market sales for the Americas. </p> <p> Spillane subsequently transferred to global equities as a senior member of the executive team responsible for building the global equities businesses. </p> <p> &nbsp;Most recently, he was responsible for establishing Deutsche Bank’s Global Relationship Management program. </p> <p> <b>David Teten</b> is CEO of <a href="http://www.nitronadvisors.com">Nitron Advisors</a>, 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. </p> <p> &nbsp;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. </p> <p> " He runs <a href="http://www.TheVirtualHandshake.com">TheVirtualHandshake.com</a>, a resource site and blog, and co-writes a monthly column for FastCompany.com. </p> <p> &nbsp;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. </p> <p> &nbsp;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 &amp; Co.<br> <br> <br> <b>David Weild IV</b> is president and CEO of The National Research Exchange (The NRE), an innovator in products and services that support capital formation. </p> <p> &nbsp;The NRE provides patent-pending analytics and facilities that enable the systematic evaluation and long-term funding of research and related services. </p> <p> &nbsp;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. </p> <p> &nbsp;He also chaired Prudential’s Equity New Issues Commitment Committee.<br> </p> <p> &nbsp;<b>PROGRAM DESCRIPTION</b> The entire research industry is undergoing a seismic shift that will produce both winners and losers in the coming years. </p> <p> 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. </p> <p> &nbsp;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. </p> <p> &nbsp;<b>Scott Lichtman's notes:</b> 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. </p> <p> Coverage continues to be shed across the industry. Fewer IPOs are symptomatic of this. There were &lt; 200 IPOS in each of last 3 years. </p> <p> &nbsp;Pre-bubble, there were 460 IPOs/year avg. We have 14 patents. </p> <p> David Teten: We provide access to frontline industry experts who can provide deep insight into the companies and industries you are analyzing. </p> <p> &nbsp;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. </p> <p> &nbsp;We provide access to that circle. </p> <p> &nbsp;This means your analysts are drawing conclusions and making the buy/sell recommendations (not us), while you benefit from ready access to unique sources. </p> <p> &nbsp;There are three trends that drive the fast growth of our model: <br> <br> <br> 1) The destruction of credibility of sell-side research.<br> <br> 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.<br> <br> 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.<br> </p> <p> I discuss these technologies in more depth in <a href="http://www.TheVirtualHandshake.com">The Virtual Handshake- Opening Doors and Closing Deals Online.</a> </p> <p> We are actively seeking out consulting firms and individuals who would like to consult through our <a href="http://www.circleofexperts.com">platform</a>. </p> <p> Paul Spillane, Soleil Securities. Our goal: Premier aggregator and distributor of intellectual content. </p> <p> 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. </p> <p> &nbsp;Covering 320 stocks, 32 analysts, 3-5 alternative products. Analysts work when they want, get paid based on deliverables. </p> <p> Incorporating Fixed income, Commodities, Equities, and commentary on data sources. </p> <p> 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. </p> <p> &nbsp;Michael Mayhew: Integrity is the leading provider of information assessment and evaluation on the research industry. </p> <p> 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. </p> <p> &nbsp;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. </p> <p> &nbsp;We help funds reduce their risk in hiring a research firm. </p> <p> &nbsp;Eric Alexander: We offer clients an integrated service, including access to a team of leading analysts in M&amp;A, special situations, oil and gas, utilities and agribusiness. </p> <p> &nbsp;We also offer clients access to a proprietary network of healthcare experts. </p> <p> &nbsp;Also have a trading desk – important for clients to gain a full range of service and for us to get paid appropriately. </p> <p> We customize offerings for each client. Richard Lipstein Question: What are challenges facing independent research firms. </p> <p> 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. </p> <p> 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. </p> <p> Also, declining commissions on a per trade basis are putting pressure on the economic equation. </p> <p> Michael Mayhew: 2 major trends. <br> 1) Biggest challenge is proving value, day in and day out. </p> <p> The kind of research that could be sold 20 yrs ago has changed. Today folks want trading ideas and proprietary data points. </p> <p> Very large % of research firms have a tough time proving value, and probably shouldn’t be in business. <br> </p> <p> <br> 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. </p> <p> &nbsp;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. </p> <p> &nbsp;The business is fundamentally bankrupt at some level.<br> </p> <p> &nbsp;Clients want 3 things – 1) access to management, (2) experts, (3) traditional research. People want things that no one else has. </p> <p> Eric Alexander: A lot of what the industry does is a commodity. </p> <p> &nbsp;Some of the forms of compensation are a thing of the past. </p> <p> &nbsp;It’s much more entrepreneurial now. </p> <p> Richard Lipstein Question: Buyside firms are decrying the lack of research but cutting back on # of research suppliers. </p> <p> How did we get in this contradictory situation? David Teten: The buyside is not seeing enough compelling research from the sell-side. </p> <p> &nbsp;However, the number of buyside analysts is way up, which shows a commitment to proprietary sources. Michael Mayhew: Other trends are happening too. </p> <p> &nbsp;There will be a significant reduction in # of firms getting paid. Firms will separate research fees and execution fees. </p> <p> 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. </p> <p> This is the only industry I’ve seen that has no idea of COGS (cost of goods sold). </p> <p> We love a value-driven model. </p> <p> &nbsp;If you can add value, clients will pay you unlimited amounts. </p> <p> &nbsp;So good analysts in their virtual workspace are making 2-3x what they did in a bulge-bracket environment. </p> <p> "We manage by compensation." </p> <p> The industry needs to get away from the lack of connection between quality and reward – casual votes on who should get what. </p> <p> We have the same regulatory framework that any registered broker-dealer has, with the analysts being registered 86s or 87s. </p> <p> Our good analysts work "24x7" at times because they love the work and get paid well, and other times take a break. </p> <p> "It’s an absolutely fantastic time to be an analyst. The bottom is here." </p> <p> 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. </p> <p> &nbsp;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. </p> <p> &nbsp;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. </p> <p> It seems like Reuters and Thompson want to know who is consuming their research and cut out people who are drinking for free. </p> <p> 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. </p> <p> &nbsp;The buyside sees their traders as integral to their team and so do we. </p> <p> &nbsp;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. </p> <p> More hedge funds have a formal voting mechanism due to regulatory requirements. </p> <p> &nbsp;Checks come in with specific analyst names on them to us. </p> <p> Michael Mayhew: All about producing good research. </p> <p> &nbsp;To one client that’s management access, to another it's industry expertise, and to another it's performance recommendations. </p> <p> Issue is that if you produce me-too maintenance research, models that don’t outperform, you have to worry. </p> <p> Question: What about outsourcing research to India and other places. </p> <p> Eric Alexander: This question is symptomatic of how much has become commoditized. Reg FD has commoditized information. </p> <p> Michael Mayhew: Couple years ago, the avg cost of wall st to cover a company was $192K – per company. </p> <p> There was an absolute need to lower that cost, so moving some research oversees made a lot of sense. </p> <p> But value-add of a research firm can’t be outsourced. David Weild IV: But you can create new value by leveraging offshore resource. </p> <p> &nbsp;It may become a necessity to have competency in offshore inputs. </p> <p> Paul Spillane: The last mile is where the value is. We get 7 calls/month from Indian firms to provide us with outsourcing. </p> <p> Most of those analysts don’t have 86s/87s and don’t talk to management. </p> <p> &nbsp;Offshores won’t complete with mainline analysts, they will focus on filtering through existing data in more conventional ways, at least for now. </p> <p> &nbsp;Offshore won’t be a huge threat. </p> <p> &nbsp;We think $8bn will be paid out, over time, in hard research. </p> <p> &nbsp;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. </p> <p> &nbsp;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. </p> <p> &nbsp;Richard Lipstein: One bulge analyst I know is having increasing quality issues, exacerbated by language barriers, time differences. </p> <p> 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 &amp; doom is great news for Nitron. </p> <p> Offshore people working off same public data further commoditizes publicly available analytics. Basic Yahoo! finance data is free. </p> <p> 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. </p> <p> &nbsp;(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.) </p> <p> Audience Question/Observation: In the last few years, lot of great info free on internet has become available in forms of blogs. </p> <p> Incredible corporate-experience types, speaking their minds and providing insights while going after eyeballs. </p> <p> They are getting paid $550K/year monetizing eyeballs (Editor's note: I know extremely few bloggers earning that type of money!). </p> <p> 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. </p> <p> &nbsp;The insights aren’t there for (isolated) associates to make money. </p> <p> &nbsp;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). </p> <p> 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. </p> <p> 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. </p> <p> &nbsp;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. </p> <p> 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. </p> <p> Blogs don’t work standalone but they are a valuable contribution. </p> <p> &nbsp;Paul Spillane: Most investors have an overload of info. </p> <p> &nbsp;We have a product to grade blog: <a href="http://www.collectiveintellect.com">Collective Intellect</a>. </p> <p> Using AI to sort through hundreds of millions of blogs a day to rate for accuracy. </p> <p> This product is on desks of some of the largest prop trading desks in the world. </p> <p> It can be a CYA, but you can’t sort through all the available info and it becomes more productive. </p> <p> &nbsp;Audience observation: Great bloggers are identified and filtered by word of mouth. </p> <p> &nbsp;Experienced people don’t read every single blog. </p> <p> Paul Spillane: But imagine if you can also grade them all. </p> <p> &nbsp;We’re excited about the prospects. </p> <p> David Weild IV: In my west coast conversations, a lot of funds are using expert networks. </p> <p> &nbsp;One guy I spoke with was a well respected 1990s internet analyst. </p> <p> &nbsp;Widely followed. He said that one key problem with Wall St research is deteriorated quality. </p> <p> &nbsp;Because of Reg FD, executives are uncomfortable with sharing corporate info. </p> <p> &nbsp;Sourcing of independent experts has become very important. </p> <p> &nbsp;One guy is using expert networks to do due diligence on potential portfolio co’s. </p> <p> &nbsp;Won’t replace need for direct access. </p> <p> Audience Question: What’s the career opportunity and income oppty for sell-side analysts. </p> <p> 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. </p> <p> &nbsp;There’s an opportunity to be more entrepreneurial these days. </p> <p> Locked in salaries and guarantees are much less available. </p> <p> Richard Lipstein: The top of the Internet bubble skewed compensation and demand for analysts. </p> <p> Comp for internet analysts gone down significantly. </p> <p> They used to be able to make 7-8 figures. </p> <p> Compensation has bottomed out because of disappearance of guarantees and extreme salaries. </p> <p> &nbsp;Not easy for sell-side analyst to move to the buyside because they’re viewed as a salesperson. </p> <p> &nbsp;However, hedge funds hire more sellsiders, young ones, than mutual funds. </p> <p> &nbsp;It’s worth noting that a typical analyst will make more than 98% of the US population rather than 99.9% in the past. </p> <p> &nbsp;Paul Spillane: You summed it up perfectly. It’s not easy to move to the buyside. </p> <p> But everyone is still paying people 6-7 figures. </p> <p> A lot of doctors, lawyers, fireman who don’t get paid that – who arguably provide critical value to society. </p> <p> 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." </p> <p> 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. </p> <p> &nbsp;Richard Lipstein Question: The typical independent research firm is much smaller than bulge bracket dept. </p> <p> &nbsp;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. </p> <p> &nbsp;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. </p> <p> &nbsp;Reputation of your employer is important to focus on when you are an analyst. </p> <p> Unless you commit fraud, you are in a good position to make clear statements - your opinion is your opinion. </p> <p> 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. </p> <p> &nbsp;Paul Spillane: Agencies like SEC, NASDAQ won’t allow that intimidation…and the First Amendment. Eric Alexander: Be clear who the customer is. </p> <p> It's not the company covered, it’s the investor. </p> <p> &nbsp;Paul Spillane: WSJ or NYT would love to ‘defend’ the small guy with strong opinion. </p> <p> 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. </p> <p> &nbsp;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. </p> <p> Jeff Skilling said "They’re on to us," in response to a certain piece of independent research. </p> <p> That's a great ad for independent research! (As Jim Chanos pointed out in a recent <a href=" http://circleofexperts.com/blog/2006/06/12/james-chanos-kynikos-associates-president-on-independent-research-at-the-crossroads">talk</a>). </p> <p> Audience Question: Given internet bubble, do you see another shakeout? David Weild IV: </p> <p> There’s a rationalization, but other models are flourishing. </p> <p> The big shoe that dropped wasn’t the bubble, it was decimalization in 2001. </p> <p> &nbsp;That cuts 95% of the commission flow. </p> <p> &nbsp;The internet brought direct transaction models and commission compression – commission went from $350 avg to 5 bucks. </p> <p> David Teten: Creative destruction is a benefit, not a bug, of capitalism. </p> <p> Net net, people are making a lot of money in finance. </p> <p> The industry is always evolving, companies change, people move around, but the quality people do just fine. </p> <p> &nbsp;Michael Mayhew: For sell side research, unbundling will have a big impact. </p> <p> When asst mgr has ability to select research and broker independently, that will really impact someone like Goldman Sachs. </p> <p> &nbsp;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? </p> <p> Eric Alexander: Some large firms got huge funds channeled to them. </p> <p> We’re not in that space at all. I’m hopeful this is over soon, it hasn’t been effective at all. </p> <p> David Teten: Spitzer uses lawsuits effectively for gubernatorial campaigns, but not necessarily in the pursuit of justice. </p> <p> 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. </p> <p> You're much better off hiring a professional, by putting your money in a mutual fund, hedge fund, or hiring a Financial Advisor. </p> <p> Spitzer agreement was a solution in search of a problem. </p> <p> The retail investor will almost inevitably have inferior returns to the professional, because of the nature of the industry. </p> <p> &nbsp;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. </p> <p> &nbsp;All agreed that the Spitzer agreement has been an "absolute disaster". </p> <p> &nbsp;Jack Coffee, of Columbia, on their board, calls it a new form of government. </p> <p> It has created a level of paralysis – 3 years left, and firms are afraid to innovate. </p> <p> Every bulge bracket says behind close doors won’t pony up again. </p> <p> It hasn’t expanded coverage to new names. It was a grand experiment that failed. "This is a drug." </p> <p> Has failed to expand coverae. </p> <p> The audience member asked what are usage statistics for the independent research that had to be posted. </p> <p> &nbsp;5% of retail hits are on the indie research, the rest is from the main provider. </p> <p> &nbsp;The only success from the agreement is focusing people on the problem – Wall St research has greater integrity today. </p> <p> 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. </p> <p> 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. </p> <p> Fundamental data-based research will consolidate. </p> <p> &nbsp;My partner has argued that research is frankly a lifestyle business for many. </p> <p> &nbsp;If you have a dozen clients paying $100K each, you can have a nice business for a few analysts. </p> <p> I suspect the number therefore will be unusually high, but fundamental traditional research will find it increasingly difficult to get paid. </p> <p> &nbsp;David Teten: Consolidation per se doesn't concern us. </p> <p> I would be worried if the overall pie shrinking dramatically. </p> <p> But to my knowledge, expert networks are the fastest growing sector in the research business. </p> <p> &nbsp;Consolidation means we buy or get bought, and there are worse things that can happen. </p> <p> &nbsp;Eric Alexander: For full disclosure, my business partner in the audience asked the consolidation question. </p> <p> &nbsp;The alternative to a lifestyle approach to making some money in research is being part of collaborative effort. </p> <p> &nbsp;When someone like Monsanto wants to do a deal, they can turn to one of our deal specialists. </p> <p> &nbsp;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. </p> <p> &nbsp;David Weild IV: Question for Michael--What # of firms have &gt; 5m revenues? Michael Mayhew: Quite small, &lt; 10% of 450. Lot of folks with $1m revenue. </p> <p> 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. </p> <p> 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. </p> <p> 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. </p> <p> 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. </p> <p> David Teten: There are 3 reasons why hedge funds are desirable clients. </p> <p> 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. </p> <p> 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. </p> <p> &nbsp;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. </p> <p> &nbsp;It will take a lot longer to wean off than anyone thinks. </p> <p> &nbsp;If a large mutual fund company wanted to separate costs, it could be 3% of their management fee. </p> <p> &nbsp;For a smaller firm, its entire management fee could be allocated to research cost. Richard Lipstein Question: Last question. </p> <p> 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. </p> <p> Be good, and be entrepreneurial. </p> <p> If you have been a salesperson, bone up on analytics. </p> <p> If you are an analyst, participate in selling. </p> <p> Michael Mayhew: Ample opportunities for good and great analysts. </p> <p> A lot of analysts have spun off with high expectations. </p> <p> Paul Spillane: If you love it and are passionate about it, there’s never been a better time. </p> <p> &nbsp;If you don’t love it, join a bulge bracket firm. </p> <p> 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). </p> <p> &nbsp;Pick a domain you can own, then become the recognized expert in that domain. David Weild IV: <br> <p> 1) Being a research analyst is a wonderful thing, whether starting independent and or bulge bracket. </p> <p> You learn a real discipline in a dynamic market (securities). </p> <p> You can switch to private equity or corporate side. It’s a great training ground. </p> <p> I’d like my kid to do this.<br> <p> <br> 2) Just to mention separately, this is anniversary of 9/11. </p> <p> &nbsp;There is a wonderful organization on that was on 60 Minutes called Tuesday’s Children, which provides services to kids who lost parents. </p> <p> Helps them get through college. Annual event at Cipriani’s 9/27. </p> <p> They placed kids on take-your-child-to-work day. I’m on the board of directors. </p> <p> Please consider supporting them. <br> </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=356" /> http://www.circleofexperts.com/blog/CommentView.html?guid=356 General Private Equity Investing Public Markets Investing Securities Research Social Software
http://www.circleofexperts.com/blog/Trackback.html?guid=351 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=351 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=351 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=351 Sep. 14: NY Society of Security Analysts: The State of Independent Research http://www.circleofexperts.com/blog/PermaLink.html?guid=351 http://www.circleofexperts.com/blog/Sep+14+NY+Society+Of+Security+Analysts+The+State+Of+Independent+Research.html Mon, 04 Sep 2006 00:18:50 GMT I hope to see you on Sep. 14: <p> <strong>New York Society of Security Analysts: The State of Independent Research </strong> </p> <p> DATE Thursday, September 14, 2006 TIME 5:30 p.m.-6:15 p.m. Networking 6:15 p.m.-7:45 p.m. Presentation LOCATION New York Society of Security Analysts 1177 Avenue of the Americas, 2nd Floor (between 45th and 46th Streets), NYC Directions at <a href="http://www.nyssa.org/Content%5CNavigationMenu%5Cabout_nyssa%5Ccontact_us1%5Cdirections.htm">http://www.nyssa.org/Content%5CNavigationMenu%5Cabout_nyssa%5Ccontact_us1%5Cdirections.htm</a> </p> <p> Photo ID required for access to the building. </p> <p> <br> <strong>SPEAKERS</strong>> <br> Eric Alexander, President, Institutional Services, Wall Street Access> <br> Michael W. Mayhew, Founder and CEO, Integrity Research Associates, LLC> <br> Paul Spillane, President and CEO, Soleil Securities Group, Inc.> <br> David Teten, CEO, Nitron Advisors> <br> David Weild IV, President and CEO, The National Research Exchange> <br> CHAIR: Richard G. Lipstein, Boyden Global Executive Search> <p> REGISTER/FEE Members Free | Nonmembers $20 Beverages will be provided. NYSSA continues to offer Career Chats to members free of charge as a member benefit.<p> <p> REGISTRATION DEADLINE: Thursday, September 7, 2006<p> <p> Walk-ins cannot be accepted.<p> <p> Register Online at <a href="http://www.nyssa.org/eseries/source/Meetings/ibomeetregister.cfm?</P> <P>PRODUCT_MAJOR=CAREER0906">http://www.nyssa.org/eseries/source/Meetings/ibomeetregister.cfm?PRODUCT_MAJOR=CAREER0906</a> </p> <p> PROGRAM DESCRIPTION </p> <p> 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 fall almost two-thirds by 2009. The need for good research, however, will never go away. </p> <p> Learn the reasons for the coming shakeout and how you can be among the success stories. </p> <p> <strong>Eric Alexander </strong>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 tremendously 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. </p> <p> <strong>Michael W. Mayhew</strong> 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. </p> <p> <strong>Paul Spillane</strong>, 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. </p> <p> <strong>David Teten</strong> is CEO of Nitron Advisors and 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. Human Capital magazine named him a 2005 Future HR Leader. 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. </p> <p> <strong>David Weild IV</strong> 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. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=351" /> http://www.circleofexperts.com/blog/CommentView.html?guid=351 General Public Markets Investing Securities Research http://www.circleofexperts.com/blog/Trackback.html?guid=342 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=342 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=342 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=342 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 Introduction to Probability textbook---no charge http://www.circleofexperts.com/blog/PermaLink.html?guid=342 http://www.circleofexperts.com/blog/Introduction+To+Probability+Textbookno+Charge.html Sun, 06 Aug 2006 04:44:43 GMT Thanks to the American Mathematical Society, Dartmouth is giving away the much-praised textbook, <strong>Introduction to Probability</strong> by Charles M. Grinstead and J. Laurie Snell, as free etext. The website also includes computer programs to go along with the book. <a href="http://www.dartmouth.edu/%7Echance/teaching_aids/books_articles/probability_book/book.html">Link</a> Via <a href="http://www.boingboing.net/2006/07/03/introduction_to_prob.html">http://www.boingboing.net/2006/07/03/introduction_to_prob.html</a><img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=342" /> http://www.circleofexperts.com/blog/CommentView.html?guid=342 General Personal Productivity Leadership and Management Career Acceleration Private Equity Investing Public Markets Investing Securities Research http://www.circleofexperts.com/blog/Trackback.html?guid=330 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=330 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=330 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=330 1 Global Structured Products: Midterm Report Card


Event on June 21, 2006

Notes by Margie Yuan and Eric Shahinian

Event sponsored by the Structured Products Association

What are Structured Products (SP)?


• A contract between investor and issuer, large investment banking firms

• A combination of financial instrument: 0% Coupon + Derivatives

• Minimum Investment of $1000

• Payout period ranges from 1-7 years

• Upfront fee (1-6%) or commission

Targeted Clients:


• Advanced technologies have enabled Baby-Boomers to live longer and to take on riskier investments.

• Baby-Boomers and investors nearing retirement, who are looking for a steady income stream but with higher returns than traditional bonds.

Types:


• Principal-protected note (PPN)- Guarantees the return of the original investment at maturity plus a percentage of investment gain

• Return-enhanced note- No principal protection. Promised return 2X or 3X of index with a maximum cap

Risks:


• Hidden Fees

• Inadequate fee disclosure

• No dividend payout from equity-linked products

• Difficult to sell before maturity date

• Inadequate legal platform to fully support the complexity of Structured Products.

Several lawyers I spoke with voiced their concerns for the current legal platform, which has not been updated since 1930s and does not acknowledge the different degrees of risk between Structured Products and Mutual Funds.

Global Environment:

Traditional instruments are misleading. Many believe that structured products represent an industry that composes financial instruments that simply do not work, yet note the following.

 Options often defy logic, i.e. and put and a call option will both rise when the corresponding stock drops 20%. Warrants, as many of us know, often move in very odd patterns, often not determined by the underlying issue.

Short selling in recent years has become not only a major source of scrutiny in the financial market industry, but also a major source of influence in the marketplace.

 Many claim that short selling ‘stabilizes prices’ and allows them to reach equilibrium, making the market more efficient. However stock lending was only made possible last year by the SEC, and so this has been going on without concern for many years, unlawfully.

 Short selling is even occurring in the T-bond market, with people benefiting on the rate drops, although now it looks unlikely to occur.

The SEC is rightfully cautious of the repo mechanism in short selling, essentially the short squeeze. Thus the brokers on the street are doing their best to prevent short drawdown, as it prompts many shorts to cover the positions.

The SEC law still needs to be refined in terms of the t-bond and index futures markets. What I am trying to establish is that the financial markets with regard to traditional instruments are not that valid and secure that people should naturally rely upon them for asset allocation. The structured products space has a lot to offer.

The Canadian economy is another place to look at in discussion of Global Structured products. Canada has tremendous resources to do phenomenally, and their economy is developing quite substantially.

What is the best thing about Canada is their income trusts. Now I am sure many people are saying that they know what an income trust is, but they are different in Canada.

They are generally for 3, 4, or 5 years in duration, and are meant as an ideal taxing structure for mature companies.

It allows the companies to pay all gross income without corporate tax. Therefore, in Canada no issue exists of double taxation, thus helping boost the economy.

We will be able to find a lot of value in Canadian products. 50% of the equity IPOs in 2005 were in the retail structured products space. To be more exact, 19 out of the 40 top offerings.

Principal protected notes, a big part of the structured products industry, are becoming a bigger product, with yield by the main banks.

They employ a CPPI structure, with 1:1 gearing, and up to 200% exposure to a commodity or pool of commodities.

This is a desirable structure because we have to remain cognizant of the fact that in Canada only 50% of all capital gains is taxed, creating a very favorable environment.

Equity forward overlays are also important to be reminded of in terms of products with yield, as the distribution is not taxed until the capital investment is recovered, then the excess return is taxed.

Products can now have split share capability, where you either have 2:1 capital distribution, or 2:1 capital appreciation.

In Europe, there has been a rational shift to thematic, simple payoffs. There is a commodities focus, which has traditionally been simply overweight.

 Water companies are emerging as a means of investment, as they have yet to be seen as a true source of stable revenues and solid returns. Spain is known for simple payoff structures, with strike prices out of the money in many, or almost all of the products.

They also have cheap options relative to their neighboring countries, and so the environment is conducive to structured product growth.

Scandinavia has been, and continues to be a ‘vanilla’ country so I will not discuss it further. Some products to note are the fund/ index linked hybrid structure.

They are essentially a ten year rainbow, and convergence has been occurring in terms of derivative basis into asset management companies.

Structured products in many ways have been compared to mutual funds, especially relative to the fee structure in terms of load and such.

 On to questions, innovation in the industry will continue to occur, driven mainly by the exotic structures products becoming more prevalent, as they have traditionally been much less regulated than their brothers and sisters, they offer much value.

 In terms of accounting for the products, that is a dilemma. Decomposition is required.

The future seems to hold many things, but what is likely is that what will occur, in addition to the change in use of exotic products, more so the traditional products will be optimized and hopefully be used to a greater extent.

A drawback to this is regulatory concerns. I am frightened by what India has and continues to do; requiring derivative holders to disclose their holdings.

This is ok for mainstream equity issues, but the derivative industry is very sensitive for this information, and it would be detrimental to achieve substantial returns.

The Middle East has many hedge funds entering, especially multi-strategy and fund of funds.

The local equity markets are rising to enormous highs, and continue to rise, and real estate is also faring well. Money was invested locally until recently, but foreign investment expansion will be the key to develop the market there.

 More shareholder friendly products could help, as derivative option products are not allowed, with typically option + zero coupon bond structure.

However interesting to note is that products still exist in similar forms, allowing us to conclude that the products are simply restructured in a way as to facilitate the product being offered pursuant to regulations.

A product that should be looked upon further in the mandatory exchange bond in terms of its use and the Time Warner/ Icahn deal.

The offshore entity to accomplish its goal of returns can find usefulness in the product. In the general marketplace, the structured products world impacts very little.

 There are an estimated 200+ products, with $20 billion of purchasing power. This industry particularly impacts the emerging markets as a very viable means to gain access. Exchange traded notes are essentially a complex bundle of exchange traded funds.

In general, it would be safe to say that we can consider structured products bundled instruments, often of debt and equity notes. Fees are something that this industry, much like the mutual fund, and especially hedge fund industry, is being scrutinized.

 Fees will likely go down substantially in the future. Hedge funds do not invest in structured products; they may use them to gain access to niche markets that are not typically available to them.

 Often times, however, swaps can be simply used to lever the returns. What needs to be clarified is that correlation swaps are OTC derivatives, not at all structured products.

Global Structured Products: Midterm Report Card http://www.circleofexperts.com/blog/PermaLink.html?guid=330 http://www.circleofexperts.com/blog/Global+Structured+Products+Midterm+Report+Card.html Mon, 03 Jul 2006 05:01:13 GMT <strong>Global Structured Products: Midterm Report Card </strong> <p> <br> Event on June 21, 2006<br> <br> Notes by Margie Yuan and Eric Shahinian<br> <br> Event sponsored by the<a href="www.structuredproducts.org/ "> Structured Products Association</a> <br> <p> What are Structured Products (SP)? </p> <p> <br> • A contract between investor and issuer, large investment banking firms <br> <br> • A combination of financial instrument: 0% Coupon + Derivatives <br> <br> • Minimum Investment of $1000 <br> <br> • Payout period ranges from 1-7 years <br> <br> • Upfront fee (1-6%) or commission <br> </p> <p> Targeted Clients: </p> <p> <br> • Advanced technologies have enabled Baby-Boomers to live longer and to take on riskier investments. <br> <br> • Baby-Boomers and investors nearing retirement, who are looking for a steady income stream but with higher returns than traditional bonds. <br> </p> <p> Types: </p> <br> • Principal-protected note (PPN)- Guarantees the return of the original investment at maturity plus a percentage of investment gain <br> <br> • Return-enhanced note- No principal protection. Promised return 2X or 3X of index with a maximum cap <br> <p> Risks: </p> <br> • Hidden Fees <br> <br> • Inadequate fee disclosure <br> <br> • No dividend payout from equity-linked products <br> <br> • Difficult to sell before maturity date <br> <br> • Inadequate legal platform to fully support the complexity of Structured Products. <br> <p> Several lawyers I spoke with voiced their concerns for the current legal platform, which has not been updated since 1930s and does not acknowledge the different degrees of risk between Structured Products and Mutual Funds. </p> <p> Global Environment: </p> <p> Traditional instruments are misleading. Many believe that structured products represent an industry that composes financial instruments that simply do not work, yet note the following. </p> <p> &nbsp;Options often defy logic, i.e. and put and a call option will both rise when the corresponding stock drops 20%. Warrants, as many of us know, often move in very odd patterns, often not determined by the underlying issue. </p> <p> Short selling in recent years has become not only a major source of scrutiny in the financial market industry, but also a major source of influence in the marketplace. <p> &nbsp;Many claim that short selling ‘stabilizes prices’ and allows them to reach equilibrium, making the market more efficient. However stock lending was only made possible last year by the SEC, and so this has been going on without concern for many years, unlawfully. <p> &nbsp;Short selling is even occurring in the T-bond market, with people benefiting on the rate drops, although now it looks unlikely to occur. <p> <p> The SEC is rightfully cautious of the repo mechanism in short selling, essentially the short squeeze. Thus the brokers on the street are doing their best to prevent short drawdown, as it prompts many shorts to cover the positions. </p> <p> The SEC law still needs to be refined in terms of the t-bond and index futures markets. What I am trying to establish is that the financial markets with regard to traditional instruments are not that valid and secure that people should naturally rely upon them for asset allocation. The structured products space has a lot to offer. </p> <p> The Canadian economy is another place to look at in discussion of Global Structured products. Canada has tremendous resources to do phenomenally, and their economy is developing quite substantially. </p> <p> What is the best thing about Canada is their income trusts. Now I am sure many people are saying that they know what an income trust is, but they are different in Canada. </p> <p> They are generally for 3, 4, or 5 years in duration, and are meant as an ideal taxing structure for mature companies. </p> <p> It allows the companies to pay all gross income without corporate tax. Therefore, in Canada no issue exists of double taxation, thus helping boost the economy. </p> <p> We will be able to find a lot of value in Canadian products. 50% of the equity IPOs in 2005 were in the retail structured products space. To be more exact, 19 out of the 40 top offerings. </p> <p> Principal protected notes, a big part of the structured products industry, are becoming a bigger product, with yield by the main banks. </p> <p> They employ a CPPI structure, with 1:1 gearing, and up to 200% exposure to a commodity or pool of commodities. </p> <p> This is a desirable structure because we have to remain cognizant of the fact that in Canada only 50% of all capital gains is taxed, creating a very favorable environment. </p> <p> Equity forward overlays are also important to be reminded of in terms of products with yield, as the distribution is not taxed until the capital investment is recovered, then the excess return is taxed. </p> <p> Products can now have split share capability, where you either have 2:1 capital distribution, or 2:1 capital appreciation. </p> <p> In Europe, there has been a rational shift to thematic, simple payoffs. There is a commodities focus, which has traditionally been simply overweight. </p> <p> &nbsp;Water companies are emerging as a means of investment, as they have yet to be seen as a true source of stable revenues and solid returns. Spain is known for simple payoff structures, with strike prices out of the money in many, or almost all of the products. </p> <p> They also have cheap options relative to their neighboring countries, and so the environment is conducive to structured product growth. </p> <p> Scandinavia has been, and continues to be a ‘vanilla’ country so I will not discuss it further. Some products to note are the fund/ index linked hybrid structure. </p> <p> They are essentially a ten year rainbow, and convergence has been occurring in terms of derivative basis into asset management companies. </p> <p> Structured products in many ways have been compared to mutual funds, especially relative to the fee structure in terms of load and such. </p> <p> &nbsp;On to questions, innovation in the industry will continue to occur, driven mainly by the exotic structures products becoming more prevalent, as they have traditionally been much less regulated than their brothers and sisters, they offer much value. </p> <p> &nbsp;In terms of accounting for the products, that is a dilemma. Decomposition is required. </p> <p> The future seems to hold many things, but what is likely is that what will occur, in addition to the change in use of exotic products, more so the traditional products will be optimized and hopefully be used to a greater extent. </p> <p> A drawback to this is regulatory concerns. I am frightened by what India has and continues to do; requiring derivative holders to disclose their holdings. </p> <p> This is ok for mainstream equity issues, but the derivative industry is very sensitive for this information, and it would be detrimental to achieve substantial returns. </p> <p> The Middle East has many hedge funds entering, especially multi-strategy and fund of funds. </p> <p> The local equity markets are rising to enormous highs, and continue to rise, and real estate is also faring well. Money was invested locally until recently, but foreign investment expansion will be the key to develop the market there. </p> <p> &nbsp;More shareholder friendly products could help, as derivative option products are not allowed, with typically option + zero coupon bond structure. </p> <p> </p> <p> However interesting to note is that products still exist in similar forms, allowing us to conclude that the products are simply restructured in a way as to facilitate the product being offered pursuant to regulations. </p> <p> A product that should be looked upon further in the mandatory exchange bond in terms of its use and the Time Warner/ Icahn deal. </p> <p> The offshore entity to accomplish its goal of returns can find usefulness in the product. In the general marketplace, the structured products world impacts very little. </p> <p> &nbsp;There are an estimated 200+ products, with $20 billion of purchasing power. This industry particularly impacts the emerging markets as a very viable means to gain access. Exchange traded notes are essentially a complex bundle of exchange traded funds. </p> <p> In general, it would be safe to say that we can consider structured products bundled instruments, often of debt and equity notes. Fees are something that this industry, much like the mutual fund, and especially hedge fund industry, is being scrutinized. </p> <p> &nbsp;Fees will likely go down substantially in the future. Hedge funds do not invest in structured products; they may use them to gain access to niche markets that are not typically available to them. </p> <p> &nbsp;Often times, however, swaps can be simply used to lever the returns. What needs to be clarified is that correlation swaps are OTC derivatives, not at all structured products. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=330" /> http://www.circleofexperts.com/blog/CommentView.html?guid=330 General Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=324 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=324 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=324 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=324

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.

TieCON East: Trends in Investment Research and Due Diligence. http://www.circleofexperts.com/blog/PermaLink.html?guid=324 http://www.circleofexperts.com/blog/TieCON+East+Trends+In+Investment+Research+And+Due+Diligence.html Mon, 19 Jun 2006 06:34:01 GMT <p> My colleague Scott Lichtman took some detailed notes on the <a href="http://tieconeast.org">TieCONEast </a>panel last week on "Trends in Investment Research and Due Diligence". </p> <p> &nbsp;Podcast is <a href="http://www.podtech.net/?p=759">here</a>. </p> <p> <strong>CONFIRMED SPEAKERS</strong> </p> <strong>Graham Field, Managing Director, AQ Research (Moderator) </strong>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. <br> <p> </p> <p> He was editor of Asiamoney and of the International Tax Review, as well as presenting business programmes on BBC radio and television. </p> <p> 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 <p> <strong>Susan Oh, Director &amp; Senior Analyst, Merrill Lynch </strong>Susan's responsibilities include manager research and the analysis of hedge funds. </p> <p> &nbsp;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. </p> <p> &nbsp;Prior to joining MLIM, Susan was a Senior Analyst at Tremont Capital Management. </p> <p> At Tremont, she conducted due diligence on hedge funds and strategies to make strategic recommendations to the Investment Committee. </p> <p> 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. </p> <p> <strong>Dave Furneaux, Founder &amp; Managing General Partner, Kodiak Venture Partners</strong> Prior to Kodiak, in 1996, he co-founded Furneaux &amp; Company, LLC, a seed stage high technology venture investment company. </p> <p> He was the founding investor and active Chairman of the Board of Extreme Packet Devices (acquired by PMC-Sierra) and Philsar (acquired by Conexant). </p> <p> 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). </p> <p> &nbsp;At Kodiak, he was an active early investor in AuroraNetics (acquired by Cisco Systems), Watchfire and Raza Microelectronics. <p> <strong>Gregory Locraft, Vice President, MFS Investment Management </strong>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. </p> <p> &nbsp;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. </p> <p> 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. <p> <strong>David Teten, CEO, Nitron Advisors </strong><a href="http://teten.com">Bio...</a> <br> <br> <strong>Scott Lichtman's </strong>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. </p> <p> As a Private Equity firm, we are constantly communicating to our managers to find depth in companies. </p> <p> The average time from startup to IPO is 8 years, from IPO to acquisition is 6 years. </p> <p> 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 &amp; going where there’s a piece of the action. </p> <br> <p> Teten: Gave overview of Nitron Advisors' business model. Quoted prominent industry CEO, who said, "If you’ve been in research &gt; 5 years, you’re not a good stock picker." Locraft has 45 analysts. </p> <p> Average hold on a stock in the market is 11 months. 40% of trading volume is from proprietary desks. </p> <p> They compensate staff to think long-term, which they define as 3 years. </p> <p> They usually only invest in companies with &gt;$500M in assets. MFS is a $170B firm with $2B in Greg's fund. </p> <p> "The level of scrutiny we've undergone at MFS has made us take a whiteboard approach to the P&amp;L." MFS is concerned about raw trading costs. </p> <p> Susan Oh: Our area invests in all major strategies: long-short equity, relative value driven, CTAs, global macro. </p> <p> She focuses on event-driven. </p> <p> &nbsp;Due diligence starts with an on-site visit. We look at management, firm, infrastructure, risk management, operations. red flag: concentrated investor base. </p> <p> Such investors may have preferential rights...which could hurt smaller investors. </p> <p> &nbsp;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. </p> <p> &nbsp;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. </p> <p> MFS will pay accordingly for specific sell-side analysis in these cases. </p> <p> &nbsp;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. </p> <p> &nbsp;Locraft: ROI on a good analyst's picks is enormous – so massive it’s not worth measuring. </p> <p> Dave Furneaux: the early stage challenge for PE/VC investors these days is that there is more money than opportunities. </p> <p> This means for any evident investing opportunity the returns are lower due to increased competition for investment dollars. </p> <p> So the key is to find an investment idea others don’t know about or appreciate. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=324" /> http://www.circleofexperts.com/blog/CommentView.html?guid=324 Events General Private Equity Investing Public Markets Investing Securities Research
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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.

Seeking E-Commerce / Internet Experts for Boston Hedge Fund Dinner, June 22, 2006 http://www.circleofexperts.com/blog/PermaLink.html?guid=319 http://www.circleofexperts.com/blog/Seeking+ECommerce+Internet+Experts+For+Boston+Hedge+Fund+Dinner+June+22+2006.html Wed, 14 Jun 2006 04:55:42 GMT <p> <strong>Seeking E-Commerce / Internet Experts for Boston Hedge Fund Dinner, June 22, 2006 </strong> </p> <p> We are organizing a hedge fund dinner for E-Commerce / Internet Experts in Boston on June 22, 6:30pm. </p> <p> This is a chance for you to talk with and learn from some of the major hedge fund investors in this sector. </p> <p> &nbsp;We're looking for people with the following backgrounds, preferably with strong international background: </p> <p> &nbsp;+ Search-engine-optimization expert (e.g., Reprise Media, competitors) </p> <p> + Large eBay power-seller, or someone knowledgeable about the eBay drop-off franchise business (e.g., Auctiondrop, iSoldit, QuickDrop, etc.) </p> <p> + Voice-over-IP executive/expert (e.g., Skype, Vonage, etc.) </p> <p> + Online travel industry – possibly with experience at a meta-search travel site (e.g., SideStep, Farechase, Kayak, Mobissimo, etc.) </p> <p> &nbsp;+ 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) </p> <p> + Paid search (or general online) marketing from the perspective of an ecommerce business </p> <p> + 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… </p> <p> 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. </p> <p> If you are not already a member of our Circle of Experts, please visit <a href="http://www.circleofexperts.com/apply-form.html?i=11">http://www.circleofexperts.com/apply-form.html?i=11</a> and apply to be a member of the Nitron Advisors Circle of Experts. </p> <p> 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. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=319" /> http://www.circleofexperts.com/blog/CommentView.html?guid=319 Events General Private Equity Investing Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=318 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=318 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=318 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=318 2 James Chanos, President of Kynikos Associates, whose fund accounts for 90% of institutional short funds in the US, delivered a very well-thought out keynote at last week's Investorside research conference, on "Independent Research at the Crossroads."

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Introduction Yale BA. He has $2.9b under mgmt. And there's only $3.3b in institutional shorts overall. So has >90% of the market.

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James Chanos:

It's best for me to speak after lunch because my talks are "unsettling but not nauseating."

Independent research is a cottage industry, with low barriers to entry. Flexible.

Is free speech not protected in bull markets?

Forces of darkness:

*issuer intimidation

*litigation

*soft dollar concerns

*customer concentration

1985: he's had private detectives go thru his garbage.

1983: critiqued Waste Management Inc. Said it was accounting spam. The (size extra-large) CFO told him, 'This is a small town, OK?' Fortunately, nothing came of it.

Owen Lamont at yale has done great research on this, showing that the more an issuer intimidates, the worse their underperformance later.

2 current cases:

- Overstock

- Biovail

Organized plaintiff's bar is now looking into the short selling business, which is bad news for independents.

Keep your business in federal not state courts...they're much friendlier to free speech than state courts.

Hedge funds are only 5 -10 percent of equity value worldwide, but could be 20-40 percent of trading volume.

Problem you in this audience should be concerned with: 50% of total hedge fund dollars are from fund of funds, and as much as 80% to 90% of inflow in last 2 years.

Given the 2 layers of fees, Fund of Funds will soon pull back.

FORCES OF LIGHT

*sell side backsliding

*customer growth

*recent history

James Chanos, Kynikos Associates President, on Independent Research at the Crossroads http://www.circleofexperts.com/blog/PermaLink.html?guid=318 http://www.circleofexperts.com/blog/James+Chanos+Kynikos+Associates+President+On+Independent+Research+At+The+Crossroads.html Mon, 12 Jun 2006 05:18:48 GMT <a href="http://www.sec.gov/spotlight/hedgefunds/hedge-chanos.htm">James Chanos</a>, President of Kynikos Associates, whose fund accounts for 90% of institutional short funds in the US, delivered a very well-thought out keynote at last week's Investorside research conference, on "Independent Research at the Crossroads." <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> <p> Introduction Yale BA. He has $2.9b under mgmt. And there's only $3.3b in institutional shorts overall. So has &gt;90% of the market. </p> <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> <p> James Chanos: </p> <p> It's best for me to speak after lunch because my talks are "unsettling but not nauseating." </p> <p> Independent research is a cottage industry, with low barriers to entry. Flexible. </p> <em>Is free speech not protected in bull markets? </em><strong> <p> Forces of darkness: </p> </strong> <p> *issuer intimidation </p> <p> *litigation </p> <p> *soft dollar concerns </p> <p> *customer concentration </p> <p> 1985: he's had private detectives go thru his garbage. </p> <p> 1983: critiqued Waste Management Inc. Said it was accounting spam. The (size extra-large) CFO told him, 'This is a small town, OK?' Fortunately, nothing came of it. </p> <a href="http://mba.yale.edu/faculty/professors/lamont.shtml">Owen Lamont</a> at yale has done great research on this, showing that the more an issuer intimidates, the worse their underperformance later. <p> 2 current cases: </p> <p> - Overstock </p> <p> - Biovail </p> <p> Organized plaintiff's bar is now looking into the short selling business, which is bad news for independents. </p> <p> Keep your business in federal not state courts...they're much friendlier to free speech than state courts. </p> <p> Hedge funds are only 5 -10 percent of equity value worldwide, but could be 20-40 percent of trading volume. </p> <p> Problem you in this audience should be concerned with: 50% of total hedge fund dollars are from fund of funds, and as much as 80% to 90% of inflow in last 2 years. </p> <p> Given the 2 layers of fees, Fund of Funds will soon pull back. </p> <strong> <p> FORCES OF LIGHT </p> </strong> <p> *sell side backsliding </p> <p> *customer growth </p> <p> *recent history </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=318" /> http://www.circleofexperts.com/blog/CommentView.html?guid=318 General Public Markets Investing Securities Research
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Some notes from June 8's Investorside Independent Research Provider Conference. Integrity Research also blogged about this event. 8:45am-9:00am Welcoming Remarks from Investorside

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John Eade: Retiring as Chairman of Investorside, and turning over Chairmanship to Stanton Green of Vista Research.

Investorside founded with 2 firms (Argus and Precursor), and now has 73 members.

He thanks board, including: Stanton Green Lisa Shalett Mike Mayhew Doug Atkin Howard Shilett Scott Cleland 9:00am-9:50am Panel 1: Soft Dollars: Guidance on New Rules and New Trends Featuring leading industry representatives and regulators discussing the new framework of client commission usage in the US and UK John Meserve (Moderator), Director, BNY Jaywalk & Westminster Research Associates/BNY Securities Group, new board member of Investorside.

Member of SIA's Institutional Brokerage Committee & Alliance in Support of Independent Research.

Worked with Bush transition team on behalf of Mossbacher; worked in US Dep't of Commerce during Reagan administration.

Jon Giblin, Lehman Brothers, responsible for electronic marketing efforts and US soft dollar efforts David Quinlan, President, Eze Castle Software, and investor in Code Red Alex Vasilescu, Securities & Exchange Commission, trial committee

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John Meserve: 3 years ago there was pandemonium that soft dollars to purchase independent research would be banned.

 That's not happening either in the US or UK.

 Regulatory authorities have repeatedly said that independent & proprietary research should be treated equally.

Also good news for indies: - trend towards unbundling - reduction in coverage by large firms To the audience: Don’t miss your time to perform in this space! Transparency & disclosure train has left the station.

UK market has made bold strides on how commissions will be managed going forward. UK approach is bleeding into US market.

Billed as 'Big Bang 2' by Paul Miner, of Miner's Report on Investment Practices. Managers will need new tools, new systems, & new approaches .

 A new financial services sector is growing, just like TCA sector (Transaction Cost Analysis).

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Alex Vasilescu, Securities & Exchange Commission, trial committee I'm speaking from enforcement perspective, against people violating Section 28e Safe Harbor.

11/25/2005: Commission responding to a decade of evolution of soft dollar practices Gave guidance on what will be appropriate practices for obtaining safe harbor.

 Clarify scope of both brokerage & research services.

 28e is about providing advice regarding investing/selling/availability/purchasing of securities.

 Not qualified: Overhead, travel, phone lines, furniture, rent, accounting services, salaries.

As money managers and B/Ds are required to give full disclosure, it benefits the independents.

 Service has to relate to subject matter of the trade. Another area of discussion: mixed-use items, e.g., a tool for both analysis & marketing.

 Burden is on money manager to break out those two categories.

Many advisors are urging buy-side clients to make this disclosure because they have legal exposure otherwise.

3rd party research can't be completely divorced from the trade.

Legally, broker-dealer (B/D) must be on the hook for payment to 3rd party.

This won't compromise all 3rd party business. B/d must also in some way be affecting the transaction.

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= Jon Giblin, Lehman Brothers, responsible for electronic marketing efforts and US soft dollar efforts Lehman has had conversations with other clients about unbundling.

This is a market structure conversation. Look at what happened in Europe: split between execution & research is disclosed.

This has shrunk the # of brokerage parties in the UK, subject to best execution.

Much more flow in a smaller number of execution providers. SEC is tackling the disclosure issue.

 Our def'n:

1) Big-U unbundling, or economic unbundling, e.g., Fidelity –Lehman deal.

Fidelity is paying for research out of their profits.

2) Little-u unbundling: See-through of allocation of execution costs and research costs.

Most clients choose little-u. Buy-side often has to trade illiquid securities with 2nd-tier, 3rd-tier providers. Transparency is key.

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David Quinlan, President, Eze Castle Software, and investor in Code Red He has 300 clients Industry issues: - pending 28e regulatory changes - unbundling - disclosure - increased transparency - regulatory audits - lack of automation for a very crucial aspect of investment management.

They specialize in commission management tools.

 Classical process is email & Excel driven---very informal, proprietary, and insecure Research Content providers-->Research Management Software-->Commission Optimizer< -->Order Management System They want to provide a scoring/quantitative tool for this whole order process.

This process can and should be automated, and it's happening today.

 Q&A

There are complaints that investigators are spending more energy pursuing money spent on indies as opposed to buy-side, because indies provide a trackable expense item.

Giblin: Clients sometimes determine execution level for a trade (DMA, algorithmic, etc.), and then tack on a cost for research.

There will never be one-size-fits-all pricing for the industry.

Audience question: How would commission-sharing arranagements take off here as they have in UK? 2 problems with that analogy: - how do you define provider of research? - NYSE ruling: broker cannot share a commission with a non-broker-dealer.

 There will be liberalization. Sununu and Schumer have both been supportive of indie reseach.

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9:50am-10:40am Panel 2: Proving Performance Buyside executives, research performance measurement experts, and research providers discuss how to most effectively value analysts' performance quantitatively and qualitatively John Eade (Moderator), Argus Research Evan Cooper, Institutional Investor Magazine Mark Fichtel, Lehman Brothers Georgette Jasen, Wall Street Journal

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=Georgette Jasen, Wall Street Journal Has run poll for 14 yrs.

 Data is entirely from Thomson. Strictly quant---we rank top 5 analysts in each industry group, using Dow Jones' industry classification approach & FTSE.

Industry classifications sometimes controversial.

Give equal credit to buy & sell recommendations.

Extensive verification period.

We post data on Statcheck website.

Verify data based on interviews with analysts.

Biggest change is we no longer include earnings estimates, because we could not be internally consistent.

 Analysts and companies were not measuring earnings in the same way.

 WSJ now exclusively reports GAAP earnings unless specified otherwise.

 Industry groups do change periodically.

We moved to simple buy/hold/sell form of analyzing recs.

A hold is a neutral rating.

To track data, they use market close from day prior to recommendation, because they can verify the price. WSJ often gets questions about this issue.

Most recommendations are made early in the day, so that's reasonable.

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=Evan Cooper, Institutional Investor Magazine 'a beauty contest'. A measure of what clients think product is worth to them. Published in Dec. issue.

 We start early in year.

Ask buy-side what results were.

Last year had 71 categories.

3400 PMs at 700 institutions get the survey.

Had 690 voters. In 49/71 categories we had enough votes to pick winners.

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Mark Fichtel, Lehman Brothers Independent consultant in Research Settlement.

I follow the three Rs: Reading, Riting, Rithmetic Pay a lot of attention to: - 'rithmetic (how well recommendations perform).

 He uses larry bloston at Columbia Biz School and Rajiv Jagarnathan at Kellogg to analyze this. They strictly measure alpha - reponsiveness.

 As of 1/06, he told firms he expected them to issue reports within 48 hrs. of a relevant event.

I was surprised by long delays between times when co. reported earnings and when indie would issue report.

 Many indies still don't understand that vast bulk of investors have been pavlovianized to expect a report within 24 hrs. of an event, so that their clients have some idea of what that event means. - readability. reports' written quality He represents the non-professional clients of the brokers.

 He uses 37 IRPs, monitors 59 firms, who cover 1350 stocks.

 He goes stock by stock.

 Overall annualized alpha is about 6% for all these firms---from -42% to +80%.

His system is only about 2 years old.

I am constantly amazed at the variety of ways in which people measure earnings.

 Also amazed that an analyst can say earnings will be $0.15 below street and still call the stock a buy.

 We decided we wanted to get the influence of the market out, and that's why we switched to an alpha.

He draws data only from Jaywalk.

 Settlement funds only cover research.

 All other expenses (e.g., Mark's salary and technology) are paid for by the firms outside of the settlement.

 So his methodology belongs to Lehman.

He won't be publishing it.

To track data, they use market close from day prior to recommendation, because they can verify the price.

 They measure cumulative daily alpha.

 Q&A Teten asked how to measure comparative research performance of expert network providers.

Evan Cooper: with votes Mark Fichtel: there's no way Georgette Jasen: there's no way For private clients, 20-50% of research used is from indies.

 Almost all of research that's being used is used by broker and then conveyed orally to client.

Very important to reach brokers and capture their enthusiasm and loyalty.

 This has been major source of revenues to some indies, but they need to be event-responsive.

If they fail to do so, they'll see $100M of revenues /year disappear Georgette: Bulge-bracket firms get more awards because of the # analysts they have.

 Evan: 3/4 of buy-side uses indie research Mark: performance drives performance of indie research. Indie firms don't take enough time to explain the reason for their recommendations.

 Clarity of ratings is very important. 10:40am-11:30am Panel 3: The Future of Institutional Investment Research Research firms discuss the seismic changes facing the institutional investment research industry Lisa Shalett (Moderator), Sanford Bernstein Stanton Green, Vista Research Rich Leggett, CFRA David Weild, The NRE

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Lisa Shalett (Moderator), Sanford Bernstein Enough with the 're's'---repackaging, regurgitation, recycling, etc. "Put the search back in re-search" We get paid based on value-added We should be an advisory

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Rich Leggett, CFRA We try to put yourself in client shoes, part of the mosaic of data they have.

Become part of the fabric of client's thought process.

They want to be go-to firm for hard-core number crunching.

Overall pie is shrinking.

 And it's not overly clear that it's favored the independents.

 Research world is overcrowded. Draws analogy to excess of vendors in the tech bubble.

Lots of noise out there. Each client is very different: communication preferences, etc. More people will take research to low-cost regions.

 Constant churn in the client base---who's changing sectors, who's changing firms.

 Buy side is going thru a professionalization of procurement function.

 Traditional sell-side changing rapidly.

 We should be a consultant/service partner, not a publisher. 'a trusted partner to our clients'.

 We need to mobilize for success in a meritocracy.

4 buckets: - risk mitigation/save money - opportunity creation—help them make money - saving time - saving money You must rise above the noise.

Get research to right people at right time.

 You must be: Differentiated, high-quality, original.

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David Weild, The NRE Decimalization has sucked life out of the low end of the market.

 We're working on a white paper on distribution of research of indies vs. i-banks.

There's about 10x more investment banking reports than there are independent reports (as measured by # reports). At low end of market, there's not much research at all, because economics don't work.

This is a challenge to the goose that lay the golden egg, of capitalism.

We address this challenge by: Research community enters into contract with NRE, not with investment banks or with companies. We mitigate conflicts for a living.

There's an arms race going on, on the buy side.

 They're very interested in the quant firms.

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Stanton Green, Vista Research Caveat: our comments are focused on institutional not retail research.

Clients will tell you what they want.

There's still much more $ in long-only than hedge funds.

 If hedge funds have $1Tr, that's only 2x what Fidelity does.

 Our product has the feel and look of a proprietary product.

 When we started our firm, we talked with 150-200 funds.

 All of our clients want, #1, better industry information.

That historically has come from an analyst who does really deep industry digging.

There's a lot of talk about sell-side research going away, but I don’t believe it.

He was recently on a panel in which overwhelming majority of CIOs of long-only shops all said that they wanted to spend more $ on building their in-house research capability.

 SIA poll: 3rd largest spend of buy-side is on compliance.

From day one, we've built a culture in our firm around compliance.

It's part of corporatization of hedge fund world. We're a service-oriented organization.

 In a recent Greenwich Associates poll, we have 95% customer loyalty.

 We're a partner, knowing what they want.

 We don’t divulge our client base, what we know, what we hear. Certainly a partner with regards to compliance.

=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=

Audience Q&A Q: How are you dealing with problem of issuer retaliation against analyst? Rich: as policy, we try to talk 3 times with a company before issuing a report.

 Before we publish anything, it goes thru a strict vetting process.

Investorside Independent Research Provider Conference http://www.circleofexperts.com/blog/PermaLink.html?guid=317 http://www.circleofexperts.com/blog/Investorside+Independent+Research+Provider+Conference.html Sun, 11 Jun 2006 07:01:30 GMT <p> Some notes from June 8's <a href="http://investorside.org">Investorside</a> Independent Research Provider Conference. Integrity Research also <a href="http://integrityresearch.blogdrive.com/archive/506.html">blogged</a> about this event. 8:45am-9:00am Welcoming Remarks from Investorside <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> <strong>John Eade: </strong>Retiring as Chairman of Investorside, and turning over Chairmanship to Stanton Green of Vista Research. <p> </p> <p> Investorside founded with 2 firms (Argus and Precursor), and now has 73 members. </p> <p> He thanks board, including: Stanton Green Lisa Shalett Mike Mayhew Doug Atkin Howard Shilett Scott Cleland <strong>9:00am-9:50am Panel 1: Soft Dollars: Guidance on New Rules and New Trends </strong>Featuring leading industry representatives and regulators discussing the new framework of client commission usage in the US and UK John Meserve (Moderator), Director, BNY Jaywalk &amp; Westminster Research Associates/BNY Securities Group, new board member of Investorside. </p> <p> Member of SIA's Institutional Brokerage Committee &amp; Alliance in Support of Independent Research. </p> <p> Worked with Bush transition team on behalf of Mossbacher; worked in US Dep't of Commerce during Reagan administration. </p> <p> Jon Giblin, Lehman Brothers, responsible for electronic marketing efforts and US soft dollar efforts David Quinlan, President, Eze Castle Software, and investor in Code Red Alex Vasilescu, Securities &amp; Exchange Commission, trial committee <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> John Meserve: 3 years ago there was pandemonium that soft dollars to purchase independent research would be banned. <p> </p> <p> &nbsp;That's not happening either in the US or UK. </p> <p> &nbsp;Regulatory authorities have repeatedly said that independent &amp; proprietary research should be treated equally. </p> <p> Also good news for indies: - trend towards unbundling - reduction in coverage by large firms To the audience: Don’t miss your time to perform in this space! Transparency &amp; disclosure train has left the station. </p> <p> UK market has made bold strides on how commissions will be managed going forward. UK approach is bleeding into US market. </p> <p> Billed as 'Big Bang 2' by Paul Miner, of Miner's Report on Investment Practices. Managers will need new tools, new systems, &amp; new approaches . </p> <p> &nbsp;A new financial services sector is growing, just like TCA sector (Transaction Cost Analysis). <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> Alex Vasilescu, Securities &amp; Exchange Commission, trial committee I'm speaking from enforcement perspective, against people violating Section 28e Safe Harbor. <p> </p> <p> 11/25/2005: Commission responding to a decade of evolution of soft dollar practices Gave guidance on what will be appropriate practices for obtaining safe harbor. </p> <p> &nbsp;Clarify scope of both brokerage &amp; research services. </p> <p> &nbsp;28e is about providing advice regarding investing/selling/availability/purchasing of securities. </p> <p> &nbsp;Not qualified: Overhead, travel, phone lines, furniture, rent, accounting services, salaries. </p> <p> As money managers and B/Ds are required to give full disclosure, it benefits the independents. </p> <p> &nbsp;Service has to relate to subject matter of the trade. Another area of discussion: mixed-use items, e.g., a tool for both analysis &amp; marketing. </p> <p> &nbsp;Burden is on money manager to break out those two categories. </p> <p> Many advisors are urging buy-side clients to make this disclosure because they have legal exposure otherwise. </p> <p> 3rd party research can't be completely divorced from the trade. </p> <p> Legally, broker-dealer (B/D) must be on the hook for payment to 3rd party. </p> <p> This won't compromise all 3rd party business. B/d must also in some way be affecting the transaction. <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= Jon Giblin, Lehman Brothers, responsible for electronic marketing efforts and US soft dollar efforts Lehman has had conversations with other clients about unbundling. </p> <p> This is a market structure conversation. Look at what happened in Europe: split between execution &amp; research is disclosed. </p> <p> This has shrunk the # of brokerage parties in the UK, subject to best execution. </p> <p> Much more flow in a smaller number of execution providers. SEC is tackling the disclosure issue. </p> <p> &nbsp;Our def'n: </p> <p> 1) Big-U unbundling, or economic unbundling, e.g., Fidelity –Lehman deal. </p> <p> Fidelity is paying for research out of their profits. </p> <p> 2) Little-u unbundling: See-through of allocation of execution costs and research costs. </p> <p> Most clients choose little-u. Buy-side often has to trade illiquid securities with 2nd-tier, 3rd-tier providers. Transparency is key. <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> David Quinlan, President, Eze Castle Software, and investor in Code Red He has 300 clients Industry issues: - pending 28e regulatory changes - unbundling - disclosure - increased transparency - regulatory audits - lack of automation for a very crucial aspect of investment management. <p> </p> <p> They specialize in commission management tools. </p> <p> &nbsp;Classical process is email &amp; Excel driven---very informal, proprietary, and insecure Research Content providers--&gt;Research Management Software--&gt;Commission Optimizer&lt; --&gt;Order Management System They want to provide a scoring/quantitative tool for this whole order process. </p> <p> This process can and should be automated, and it's happening today. </p> <p> &nbsp;<strong>Q&amp;A</strong> </p> There are complaints that investigators are spending more energy pursuing money spent on indies as opposed to buy-side, because indies provide a trackable expense item. <p> </p> <p> Giblin: Clients sometimes determine execution level for a trade (DMA, algorithmic, etc.), and then tack on a cost for research. </p> <p> There will never be one-size-fits-all pricing for the industry. </p> <p> Audience question: How would commission-sharing arranagements take off here as they have in UK? 2 problems with that analogy: - how do you define provider of research? - NYSE ruling: broker cannot share a commission with a non-broker-dealer. </p> <p> &nbsp;There will be liberalization. Sununu and Schumer have both been supportive of indie reseach. <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> 9:50am-10:40am Panel 2: Proving Performance Buyside executives, research performance measurement experts, and research providers discuss how to most effectively value analysts' performance quantitatively and qualitatively John Eade (Moderator), Argus Research Evan Cooper, Institutional Investor Magazine Mark Fichtel, Lehman Brothers Georgette Jasen, Wall Street Journal <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=Georgette Jasen, Wall Street Journal Has run poll for 14 yrs. </p> <p> &nbsp;Data is entirely from Thomson. Strictly quant---we rank top 5 analysts in each industry group, using Dow Jones' industry classification approach &amp; FTSE. </p> <p> Industry classifications sometimes controversial. </p> <p> Give equal credit to buy &amp; sell recommendations. </p> <p> Extensive verification period. </p> <p> We post data on Statcheck website. </p> <p> Verify data based on interviews with analysts. </p> <p> Biggest change is we no longer include earnings estimates, because we could not be internally consistent. </p> <p> &nbsp;Analysts and companies were not measuring earnings in the same way. </p> <p> &nbsp;WSJ now exclusively reports GAAP earnings unless specified otherwise. </p> <p> &nbsp;Industry groups do change periodically. </p> <p> We moved to simple buy/hold/sell form of analyzing recs. </p> <p> A hold is a neutral rating. </p> <p> To track data, they use market close from day prior to recommendation, because they can verify the price. WSJ often gets questions about this issue. </p> <p> Most recommendations are made early in the day, so that's reasonable. <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=Evan Cooper, Institutional Investor Magazine 'a beauty contest'. A measure of what clients think product is worth to them. Published in Dec. issue. </p> <p> &nbsp;We start early in year. </p> <p> Ask buy-side what results were. </p> <p> Last year had 71 categories. </p> <p> 3400 PMs at 700 institutions get the survey. </p> <p> Had 690 voters. In 49/71 categories we had enough votes to pick winners. </p> <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> Mark Fichtel, Lehman Brothers Independent consultant in Research Settlement. <p> </p> <p> I follow the three Rs: Reading, Riting, Rithmetic Pay a lot of attention to: - 'rithmetic (how well recommendations perform). </p> <p> &nbsp;He uses larry bloston at Columbia Biz School and Rajiv Jagarnathan at Kellogg to analyze this. They strictly measure alpha - reponsiveness. </p> <p> &nbsp;As of 1/06, he told firms he expected them to issue reports within 48 hrs. of a relevant event. </p> <p> I was surprised by long delays between times when co. reported earnings and when indie would issue report. </p> <p> &nbsp;Many indies still don't understand that vast bulk of investors have been pavlovianized to expect a report within 24 hrs. of an event, so that their clients have some idea of what that event means. - readability. reports' written quality He represents the non-professional clients of the brokers. </p> <p> &nbsp;He uses 37 IRPs, monitors 59 firms, who cover 1350 stocks. </p> <p> &nbsp;He goes stock by stock. </p> <p> &nbsp;Overall annualized alpha is about 6% for all these firms---from -42% to +80%. </p> <p> His system is only about 2 years old. </p> <p> I am constantly amazed at the variety of ways in which people measure earnings. </p> <p> &nbsp;Also amazed that an analyst can say earnings will be $0.15 below street and still call the stock a buy. </p> <p> &nbsp;We decided we wanted to get the influence of the market out, and that's why we switched to an alpha. </p> <p> He draws data only from Jaywalk. </p> <p> &nbsp;Settlement funds only cover research. </p> <p> &nbsp;All other expenses (e.g., Mark's salary and technology) are paid for by the firms outside of the settlement. </p> <p> &nbsp;So his methodology belongs to Lehman. </p> <p> He won't be publishing it. </p> <p> To track data, they use market close from day prior to recommendation, because they can verify the price. </p> <p> &nbsp;They measure cumulative daily alpha. </p> <p> &nbsp;Q&amp;A Teten asked how to measure comparative research performance of expert network providers. </p> <p> Evan Cooper: with votes Mark Fichtel: there's no way Georgette Jasen: there's no way For private clients, 20-50% of research used is from indies. </p> <p> &nbsp;Almost all of research that's being used is used by broker and then conveyed orally to client. </p> <p> Very important to reach brokers and capture their enthusiasm and loyalty. </p> <p> &nbsp;This has been major source of revenues to some indies, but they need to be event-responsive. </p> <p> If they fail to do so, they'll see $100M of revenues /year disappear Georgette: Bulge-bracket firms get more awards because of the # analysts they have. </p> <p> &nbsp;Evan: 3/4 of buy-side uses indie research Mark: performance drives performance of indie research. Indie firms don't take enough time to explain the reason for their recommendations. </p> <p> &nbsp;Clarity of ratings is very important. 10:40am-11:30am Panel 3: The Future of Institutional Investment Research Research firms discuss the seismic changes facing the institutional investment research industry Lisa Shalett (Moderator), Sanford Bernstein Stanton Green, Vista Research Rich Leggett, CFRA David Weild, The NRE <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> Lisa Shalett (Moderator), Sanford Bernstein Enough with the 're's'---repackaging, regurgitation, recycling, etc. "Put the search back in re-search" We get paid based on value-added We should be an advisory <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> Rich Leggett, CFRA We try to put yourself in client shoes, part of the mosaic of data they have. <p> </p> <p> Become part of the fabric of client's thought process. </p> <p> They want to be go-to firm for hard-core number crunching. </p> <p> Overall pie is shrinking. </p> <p> &nbsp;And it's not overly clear that it's favored the independents. </p> <p> &nbsp;Research world is overcrowded. Draws analogy to excess of vendors in the tech bubble. </p> <p> Lots of noise out there. Each client is very different: communication preferences, etc. More people will take research to low-cost regions. </p> <p> &nbsp;Constant churn in the client base---who's changing sectors, who's changing firms. </p> <p> &nbsp;Buy side is going thru a professionalization of procurement function. </p> <p> &nbsp;Traditional sell-side changing rapidly. </p> <p> &nbsp;We should be a consultant/service partner, not a publisher. 'a trusted partner to our clients'. </p> <p> &nbsp;We need to mobilize for success in a meritocracy. </p> <p> 4 buckets: - risk mitigation/save money - opportunity creation—help them make money - saving time - saving money You must rise above the noise. </p> <p> Get research to right people at right time. </p> <p> &nbsp;You must be: Differentiated, high-quality, original. <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> David Weild, The NRE Decimalization has sucked life out of the low end of the market. <p> </p> <p> &nbsp;We're working on a white paper on distribution of research of indies vs. i-banks. </p> <p> There's about 10x more investment banking reports than there are independent reports (as measured by # reports). At low end of market, there's not much research at all, because economics don't work. </p> <p> This is a challenge to the goose that lay the golden egg, of capitalism. </p> <p> We address this challenge by: Research community enters into contract with NRE, not with investment banks or with companies. We mitigate conflicts for a living. </p> <p> There's an arms race going on, on the buy side. </p> <p> &nbsp;They're very interested in the quant firms. </p> <p> <p> &nbsp;=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> Stanton Green, Vista Research Caveat: our comments are focused on institutional not retail research. <p> </p> <p> Clients will tell you what they want. </p> <p> There's still much more $ in long-only than hedge funds. </p> <p> &nbsp;If hedge funds have $1Tr, that's only 2x what Fidelity does. </p> <p> &nbsp;Our product has the feel and look of a proprietary product. </p> <p> &nbsp;When we started our firm, we talked with 150-200 funds. </p> <p> &nbsp;All of our clients want, #1, better industry information. </p> <p> That historically has come from an analyst who does really deep industry digging. </p> <p> There's a lot of talk about sell-side research going away, but I don’t believe it. </p> <p> He was recently on a panel in which overwhelming majority of CIOs of long-only shops all said that they wanted to spend more $ on building their in-house research capability. </p> <p> &nbsp;SIA poll: 3rd largest spend of buy-side is on compliance. </p> <p> From day one, we've built a culture in our firm around compliance. </p> <p> It's part of corporatization of hedge fund world. We're a service-oriented organization. </p> <p> &nbsp;In a recent Greenwich Associates poll, we have 95% customer loyalty. </p> <p> &nbsp;We're a partner, knowing what they want. </p> <p> &nbsp;We don’t divulge our client base, what we know, what we hear. Certainly a partner with regards to compliance. </p> <p> <p> =-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=--=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= </p> Audience Q&amp;A Q: How are you dealing with problem of issuer retaliation against analyst? Rich: as policy, we try to talk 3 times with a company before issuing a report. <p> </p> <p> &nbsp;Before we publish anything, it goes thru a strict vetting process. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=317" /> http://www.circleofexperts.com/blog/CommentView.html?guid=317 General Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=313 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=313 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=313 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=313
With their combination of low fees, tax efficiency and simple, autopilot investing style, index funds seem to have captivated American investors. At the same time, however, many investors still hold trillions of dollars in high-fee funds despite well-publicized evidence that low-fee alternatives offer higher returns over the long run. "It struck us that most people just don't know what mutual fund fees are. So we set out to actually test that," says Brigitte C. Madrian, professor of business and public policy at Wharton. The result is a paper titled, "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," by Madrian, Yale professor James J. Choi and Harvard economics professor David Laibson.
More: http://knowledge.wharton.upenn.edu/article/1491.cfm Why Do Investors Choose High-fee Mutual Funds Despite the Lower Returns? http://www.circleofexperts.com/blog/PermaLink.html?guid=313 http://www.circleofexperts.com/blog/Why+Do+Investors+Choose+Highfee+Mutual+Funds+Despite+The+Lower+Returns.html Thu, 01 Jun 2006 04:14:06 GMT <blockquote>With their combination of low fees, tax efficiency and simple, autopilot investing style, index funds seem to have captivated American investors. At the same time, however, many investors still hold trillions of dollars in high-fee funds despite well-publicized evidence that low-fee alternatives offer higher returns over the long run. "It struck us that most people just don't know what mutual fund fees are. So we set out to actually test that," says Brigitte C. Madrian, professor of business and public policy at Wharton. The result is a paper titled, "Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds," by Madrian, Yale professor James J. Choi and Harvard economics professor David Laibson. </blockquote> More: <a href="http://knowledge.wharton.upenn.edu/article/1491.cfm"> http://knowledge.wharton.upenn.edu/article/1491.cfm</a> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=313" /> http://www.circleofexperts.com/blog/CommentView.html?guid=313 General Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=303 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=303 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=303 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=303 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. Dealbreaker/Bullpen Report http://www.circleofexperts.com/blog/PermaLink.html?guid=303 http://www.circleofexperts.com/blog/DealbreakerBullpen+Report.html Mon, 15 May 2006 05:00:03 GMT For the lighter side of Wall Street, check out: <strong><a href="http://www.dealbreaker.com/">http://www.dealbreaker.com/ </a> </strong> "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." <strong> AND <a href=" http://www.thebullpenreport.net/"> http://www.thebullpenreport.net/</a></strong> 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.<img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=303" /> http://www.circleofexperts.com/blog/CommentView.html?guid=303 General Private Equity Investing Public Markets Investing Securities Research http://www.circleofexperts.com/blog/Trackback.html?guid=292 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=292 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=292 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=292 1 Is It the Fund or the Fund Manager that Fuels Performance? http://www.circleofexperts.com/blog/PermaLink.html?guid=292 http://www.circleofexperts.com/blog/Is+It+The+Fund+Or+The+Fund+Manager+That+Fuels+Performance.html Tue, 25 Apr 2006 10:22:02 GMT <strong>Is It the Fund or the Fund Manager that Fuels Performance? </strong> "When it comes to the world of work, mutual fund managers are a respected breed. Yet what part does the fund itself play in a successful outcome? Klaas P. Baks, assistant professor of finance at Emory University's Goizueta Business School, researched this question in his paper "On the Performance of Mutual Fund Managers." Baks' paper separates the fund manager from the fund organization as a means of analyzing performance to determine just how important that star manager truly is. The results are surprising." <a href="http://knowledge.emory.edu/index.cfm?fa=viewArticle&ID=964">http://knowledge.emory.edu/index.cfm?fa=viewArticle&ID=964 </a><img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=292" /> http://www.circleofexperts.com/blog/CommentView.html?guid=292 General Public Markets Investing Securities Research http://www.circleofexperts.com/blog/Trackback.html?guid=288 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=288 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=288 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=288

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 .

Invitation: TiECON East, June 15-17, Boston, MA http://www.circleofexperts.com/blog/PermaLink.html?guid=288 http://www.circleofexperts.com/blog/Invitation+TiECON+East+June+1517+Boston+MA.html Sun, 16 Apr 2006 07:24:19 GMT <p> 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. </p> <p> &nbsp;The sponsoring organization is <a href="http://tie.org">TiE</a>, whose members receive roughly 5% of the venture capital investment in the United States. </p> <p> Speakers include: - </p> <p> &nbsp;Howard Anderson, Founder Battery Ventures and The Yankee Group - Nikesh Arora, VP &amp; GM Europe, Google - Clayton M. Christensen, Professor, Harvard Business School, Author, The Innovator's Dilemma - Rajat Gupta, Senior Partner Worldwide, McKinsey &amp; Co. - Ray Kurzweil, Author &amp; 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. </p> <p> &nbsp;I'll be participating in two panels, one on innovation in <a href="http://thevirtualhandshake.com">social software and online networks</a>, and one on innovation in investment research. </p> <p> 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 <a href="http://www.hillsdale.edu/imprimis/2006/February/">not </a>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 <a href="www.tieconeast.com ">www.tieconeast.com </a>. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=288" /> http://www.circleofexperts.com/blog/CommentView.html?guid=288 Career Acceleration Events General Leadership and Management Personal Productivity Private Equity Investing Public Markets Investing Securities Research Social Software
http://www.circleofexperts.com/blog/Trackback.html?guid=283 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=283 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=283 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=283

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.

Rewarding Corporate Access: What Does the Buyside Value? http://www.circleofexperts.com/blog/PermaLink.html?guid=283 http://www.circleofexperts.com/blog/Rewarding+Corporate+Access+What+Does+The+Buyside+Value.html Mon, 10 Apr 2006 04:30:28 GMT <p class="MsoNormal"> In between various meetings in London last week, I dropped into the Third <a href="http://www.aqresearch.com/">AQ Research</a> Conference, to attend a panel on "Rewarding Corporate Access: What Does the Buyside Value?" </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> My notes follow: </p> <p class="MsoNormal"> <strong> </strong> </p> <p class="MsoNormal"> <strong>Speakers:</strong> </p> <p class="MsoNormal"> <strong>Ralf Frank, Chair, German Association of Investment Professionals.</strong> Hosts 250 events / year where corporates present in one-on-ones. Moderator. </p> <p class="MsoNormal"> <strong>Alex Barr, Aberdeen Asset Management</strong> </p> <p class="MsoNormal"> <strong>Vikas Nath (spelling?), North South Capital</strong> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Jennifer Morris, Manager, Governance and Engagement, Hermes. </strong> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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? </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Ralf: How important is written research?</strong> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>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. </strong> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> Aberdeen is interested in investing in long-term. "Impatience is the enemy of outperformance." We have a duty to minimize total transaction costs. </p> <p class="MsoNormal"> Corporate access is the most central part of investment process. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> We are paying for 3 things: </p> <p class="MsoNormal"> - execution </p> <p class="MsoNormal"> - corporate access </p> <p class="MsoNormal"> - Research (we use only a limited amount) </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> They generally don’t use broker analysts. Corporate access is embedded within total research cost. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Vikas Nath, North South Capital</strong> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> Strategy: Global emerging markets equity long/short. </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> We have very limited time to deal with everything that we'd like to do. </p> <p class="MsoNormal"> We don't have time to do primary research. </p> <p class="MsoNormal"> 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) </p> <p class="MsoNormal"> Very relationship driven. </p> <p class="MsoNormal"> It's more convenient for them to pay for research + execution in one single fee. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Morris:</strong> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> Outside of the UK, we do roadtrips, meet with foreign companies when they're visiting the UK. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Barr:</strong> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> We are increasing the number of meetings we organize ourselves. Corporate access is the lion's share of the residual after commission. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Nath:</strong> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> We see 10-15 companies a week between 3 investment professionals. </p> <p class="MsoNormal"> <strong> </strong> </p> <p class="MsoNormal"> <strong>Frank:</strong> </p> <p class="MsoNormal"> 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? </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Barr:</strong> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Morris:</strong> </p> <p class="MsoNormal"> Good sell-side research providers don't have to worry. </p> <p class="MsoNormal"> Every few days I get a call from yet another research provider who wants to talk about what they're offering. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Vikas:</strong> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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) </p> <p class="MsoNormal"> <strong>Audience member:</strong> </p> <p class="MsoNormal"> What is the value-add you extract from company meeting. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Barr:</strong> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> Mgmt. is not going to meet with every investor. </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> <strong>Morris:</strong> </p> <p class="MsoNormal"> </p> <p class="MsoNormal"> 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. </p> <p class="MsoNormal"> </p> <strike> </strike><img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=283" /> http://www.circleofexperts.com/blog/CommentView.html?guid=283 Private Equity Investing Public Markets Investing Securities Research
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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.

Investing in Stock Markets with Social Network Analysis http://www.circleofexperts.com/blog/PermaLink.html?guid=271 http://www.circleofexperts.com/blog/Investing+In+Stock+Markets+With+Social+Network+Analysis.html Thu, 23 Mar 2006 06:14:36 GMT <p> Federico Colecchia, a network researcher at <a href="http://www.atalab.com">ATALAB</a>, wrote to the <a href="http://www.insna.org/INSNA/socnet.html">SOCNET </a>mailing list: "I am looking for recent/ongoing research on application of social network analysis technologies to analysis of stock values." </p> <p> (He works as a researcher and R&amp;D coordinator for development of visual intelligence software tools for multiple applications. His current focus is on drug discovery support.) </p> <p> We traded emails about the use of social network analysis in the financial markets. </p> <p> 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." </p> <p> &nbsp;He also mentioned <a href="http://www.chiresearch.com">chiresearch</a> (contact <a href="http://www.sas.upenn.edu/~jmote/">Jonathon Mote</a>, 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?&nbsp; Of course, <a href="http://www.nitronadvisors.com">Nitron Advisors</a> is one indirect example. </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=271" /> http://www.circleofexperts.com/blog/CommentView.html?guid=271 Private Equity Investing Public Markets Investing Securities Research Social Software
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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!

Relaunch/New Location for Brain Food Blog http://www.circleofexperts.com/blog/PermaLink.html?guid=268 http://www.circleofexperts.com/blog/RelaunchNew+Location+For+Brain+Food+Blog.html Mon, 20 Mar 2006 05:30:17 GMT <p> 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, <a href="http://www.CircleOfExperts.com/blog">http://www.CircleOfExperts.com/blog</a> . Please tell your friends! From that link, you can subscribe with your favorite blog reader (Bloglines, Newsgator, etc.) or get every posting via email. </p> <p> If you would like to change your subscription, unsubscribe, or make other changes, just visit <a href="http://lists.circleofexperts.com/mailman/listinfo/brain-food">http://lists.circleofexperts.com/mailman/listinfo/brain-food .</a> </p> <p> We will continue to write on <a href="http://www.CircleOfExperts.com/blog">Brain Food</a> about career acceleration, business acceleration, consulting opportunities for industry experts, investment research, and online networks. We always welcome <a href="http://circleofexperts.com/contact.html">suggestions</a> from people with good content.<br /> We have several sister blogs and mailing lists we recommend:<br /> <a href="http://www.nitronadvisors.com/mailing-list.html">http://www.nitronadvisors.com/mailing-list.html</a> – two mailing lists for businesspeople interested in independent consulting assignments and new full-time jobs </p> <p> <a href="http://www.circleofexperts.com/nyc">http://www.circleofexperts.com/nyc</a> : worthwhile business conferences, panels, and other events in the New York area </p> <p> <a href="http://www.TheVirtualHandshake.com"> http://www.TheVirtualHandshake.com</a> : 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, <em>The Virtual Handshake: Opening Doors and Closing Deals Online</em>.<br /> 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! </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=268" /> http://www.circleofexperts.com/blog/CommentView.html?guid=268 General Social Software Events Personal Productivity Leadership and Management Career Acceleration Private Equity Investing Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=267 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=267 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=267 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=267 In Search of Alpha: Innovation in Securities Research (2/9/06 Harvard Business School Club of CT Panel) http://www.circleofexperts.com/blog/PermaLink.html?guid=267 http://www.circleofexperts.com/blog/In+Search+Of+Alpha+Innovation+In+Securities+Research+2906+Harvard+Business+School+Club+Of+CT+Panel.html Tue, 21 Feb 2006 11:02:45 GMT <p class="MsoPlainText"> I recently was fortunate to participate in a panel discussion on “In Search of Alpha: Innovation in Securities Research", sponsored by The Harvard Business School Club of Connecticut, Thursday, Feb. 9, 2006, in Greenwich, CT. </p> <p class="MsoPlainText"> Tom Hutchinson and Michael Mayhew of Integrity Research already blogged about the program <a title="mayhew" href="http://integrityresearch.blogdrive.com/archive/cm-2_cy-2006_m-2_d-20_y-2006_o-6.html">here</a>. </p> <p class="MsoPlainText"> <u><strong>Biographies of Panelists:</strong></u> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew, CEO, <a href="http://integrityresearch.blogdrive.com/">Integrity Research </a>– Panel Moderator</strong> </p> <p class="MsoPlainText"> In 2000 Michael founded Integrity Research Associates, LLC, a syndicated research, ratings and consulting firm whose focus is to help institutional investors identify, evaluate, select, and monitor research providers that can produce a meaningful difference to the bottom line performance of their investment portfolios. Previously, Mike was the Chief Executive Officer and President of Garban Information Systems, the financial information division of a $3.0 billion multinational corporation - Garban/United News & Media. During his 4 ½ year tenure, Mike grew the company by over 55% in revenue and 80% in profit. Before his stint with Garban, Mr. Mayhew worked as the Director of Strategic Planning & Business Development for Standard & Poor’s $350 million Financial Information Services Group. He was responsible for all strategic planning initiatives, evaluating and establishing product development priorities, and analyzing acquisition and/or divestiture opportunities for the 8 businesses within S&P's Financial Information Group. Mike started his career in the industry in January 1982 as an economist with MMS International where he analyzed and forecasted the U.S. real sector. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin, President and CEO of <a href="http://www.majesticresearch.com">Majestic Research</a></strong> </p> <p class="MsoPlainText"> Doug 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. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett, Chairman/CEO, <a href="http://www.bernstein.com">Sanford C. Bernstein & Co., LLC</a>, a subsidiary of Alliance Capital</strong> </p> <p class="MsoPlainText"> Lisa previously served as Director of Global Research for U.S. and European companies. Prior to taking this position, Lisa served as senior research analyst covering capital goods and diversified industrials. In this position, Ms. Shalett was recognized as an “Up & Coming" analyst by Institutional Investor in 1996 and 1997; in 1998, she joined the Institutional Investor All-America Research team where she remained a top ranked analyst through 2000. Ms. Shalett joined the firm in 1995. Previously, she spent six years as a management consultant at the Boston Consulting Group in New York, covering consumer and technology-intensive industries. From 1985 to 1988, she also held positions at Motorola, Booz, Allen & Hamilton and PepsiCo, Inc. Ms. Shalett holds a dual magna cum laude B.S. in Applied Mathematics & Economics from Brown University and an MBA from Harvard Business School. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten, CEO of <a target="_blank" href="http://www.nitronadvisors.com/">Nitron Advisors</a></strong> </p> <p class="MsoPlainText"> Nitron Advisors provides institutional investors with direct access to its <a target="_blank" href="http://www.circleofexperts.com/">Circle of Experts</a>: frontline industry experts: senior executives, scientists, engineers, and academics. Nitron specializes in providing access to executives in transition. David is the coauthor of <a target="_blank" href="http://www.TheVirtualHandshake.com/">The Virtual Handshake: Opening Doors and Closing Deals Online</a>, the first book about how to use online networks—blogs, social network sites, virtual communities, and other "social software" technologies. David formerly was CEO of GoldNames, an investment bank focusing on serving the Internet domain name asset class, which he built to 450 customers. He worked at Bear Stearns' Investment Banking division in their technology/defense mergers and acquisitions team, and was a strategy consultant with Mars & Co in Greenwich. David holds a Harvard MBA and a Yale BA. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Event Media Sponsors: Eurekahedge, CAIA, Alternative Asset Center</strong> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>NOTES</strong> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong>, CEO, Integrity Research – Panel Moderator </p> <p class="MsoPlainText"> We are the “Greenwich Associates of the research space". 2.5 years old. We offer research on the securities research industry. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Question for all panelists: What is the most important development in recent years in the research industry, affecting both your business and its clients? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong>, Chairman/CEO, Sanford C. Bernstein & Co., LLC, a subsidiary of Alliance Capital </p> <p class="MsoPlainText"> The biggest development that has changed is the transformation of trading technology; prices have dropped from $1/share (pre-May Day) to a few pennies a share. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> What has changed most about the research industry is the valuation of sell side research. The questioning of the value of sell side research is shocking to me, because research really matters; thousands of buyers are voluntarily pulling down our research reports every day on First Call. The question of the value of sell side research is raised by regulatory ambiguity in the bundling of payment processes. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Bundling is preserved as a business practice based on tradition. Transparency should be preserved because it promotes price discovery, and leads to an efficient marketplace. Bundling will continue; what has been mandated is transparency. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Bundling prices creates its own economic efficiencies, allowing one to access excellent resources on a variable cost basis. Although you may not be getting best of breed, you are nonetheless getting execellent resources available at all times. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Managers are taking the high quality of research for granted and lack appreciation for its distribution (their access). The question remains – does bundling create economic efficiencies? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong>, CEO of Nitron Advisors: </p> <p class="MsoPlainText"> To answer <strong>Michael Mayhew</strong>'s question, the biggest trend impacting the research business is that analytical processing power has been commoditized. There are three main drivers of this phenomenon: </p> <p class="MsoPlainText"> - cheaper labor (outsourcing to India, e.g., JP Morgan research) </p> <p class="MsoPlainText"> - dramatic drop in cost of computer processing power </p> <p class="MsoPlainText"> - better data vendors, and better integration of data into our analytical tools </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Result: more and more funds have very similar, high-quality analytic tool kits. (Not to mention the profusion of funds, each with those same tools!). </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Next logical result: it is exceedingly hard to gain alpha by looking at the exact same publicly filed financial documents as everyone else. Unless you do something different, you will achieve the same results as everyone else, i.e., the index return (less expenses and taxes). </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> It is mathematically impossible for the average long-only institutional investor to exceed the market indices (post-expenses, let alone post-taxes), because institutions are 90% of volume on most major exchanges. Roughly the same analysis applies to other trading strategies. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> The question: how can one gain an edge over the market? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> (Time for brief sales pitch). The expert network industry offers an answer to this dilemma. Nitron Advisors provides institutional investors with direct access to frontline industry experts. In particular, we leverage peoples' digital trail to identify the ideal expert for our clients' needs. We specialize in executives in transition. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Part of the inspiration for our business: Just as more and more of our social/dating relationships are online, more and more of our business relationships are happening online. Businesspeople are using technologies to build new relationships in the same way that daters use dating sites to meet appropriate partners. More and more people are building a digital trail, and we're experts in reading that digital trail. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> 84% of U.S. Internet users have used the Internet to contact or get information from an online group—more than have used the Internet to read news, search for health information, or even to buy something. Bill Gates, John Kerry, and other celebrities are among the over 2 million people currently registered on LinkedIn, a popular business networking site. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> (Second and last brief advertisement): In the back of the room are complimentary copies of my new book, The Virtual Handshake: Opening Doors and Closing Deals Online (www.TheVirtualHandshake.com), with more information about these technologies and our approach. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong>, President and CEO of Majestic Research </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Majestic Research takes large samples of data, both online and offline, and compiles it into research reports. By utilizing research analysts with a background in applied statistics/mathematics, we provide information that is not traditional on Wall Street. We review 30 million web pages per day, e.g., ebay sales data. Also, half of our work is custom work. We then correlate the data and apply various metrics. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> In response to Michael's question: The preeminent development in the research space is that bulge bracket firms have changed their model. From the perspective of fund managers, bulge brackets are both the largest competitors and customers! The epicenter of buy-side profits is using client data to make money. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> The model on Wall Street has always been one revolving around commissions. Those trading commissions are a mask for information. Total cost of trade includes execution cost as well as transaction cost => hard to measure. We estimate buyside loses 1% of performance on each trade, just in commission. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> 20% of research on Wall Street is valuable, 50% is considered crap, and the rest is marginally valuable. Buy side is outsourcing research and using electronic providers for execution. I foresee sell side becoming a group of large hedge funds—which is what they already essentially are. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Institutional investors traditionally view performance of research recommendations as low on the list of priorities. Why? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> 1. Ego. No one is going to say, "The reason I'm up 20% this year is because I did what some outside research providers told me to do." </p> <p class="MsoPlainText"> 2. Division of labor in market. Individuals are using 3rd party research for different things, not to buy/sell stocks. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong> </p> <p class="MsoPlainText"> I've heard clients tell me that they skim everything in a sell-side research report---except the recommendation itself, which they often think is not usefulat all. </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> Fund managers don’t care about buy/sell. They are interested in brokers that provide the access to companies. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> I don't understand this. If you want to talk to a CEO or Investor Relations Representative, simply call them =>if you have some of their stock, or are seriously considering putting significant money to work, they will speak to you! </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> I think soft dollars should remain, but it must be realized that the money isn’t coming out of the buyside's bottom line. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Buy side keeps reporting that they are paying in large part for management access. What does this mean for sell side and independent research firms? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> CIO’s told him at recent conference that they value being able to sit down with C-level management more than anything else. Could this eat away at value of research? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> To the contrary, it makes research more valuable and creates a greater need for incremental information, which C-level management can’t provide. Management access simply provides confirmation of already available data. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> The buy-side's obsession with management access is irrational; it's all about their desire to know what the "consensus" is. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong> </p> <p class="MsoPlainText"> Why pay for a five-course meal when you're only eating the steak? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> We're a biased source to answer that question, given the nature of Nitron Advisors' business. We think that the buy side's high valuation on management access implies that they are better off just paying for access to their sources. They shouldn't be paying more money than they need to for analysis they don’t actually use. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> “Old Habits Die Hard" => ten years ago, talking to the CEO and hearing what they had to say was value added because they could speak more freely. With Regulation FD, you are speaking to the general counsel. This will take couple of years to play out. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> If management access is the “say all and be all", then Wall Street is merely a concierge service to connect people with C-level management. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> What will be the value of research? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> The good news is the emergence of independent mutual fund boards, which will raise the issue of management access. You're trading through a big sell-side bank, and paying $10,000/meeting just to talk with management---is that really logical? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> There is a growing demand for proprietary information. Do you think this trend is going to continue? How will it affect the industry? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong> </p> <p class="MsoPlainText"> The market only gets more efficient and reflects ever more and ever more quickly the public data. “The beauty of our business at Nitron Advisors is that our business is scalable". We have access to essentially unlimited sources, each with his/her own unique insights and sources. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> By contrast, a traditional research analyst can only provide a high level of value to 10-20 highest-value clients, before his or her insights are too widely disseminated. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> If you have more than 20 clients, you can no longer maintain exclusivity. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> We have syndicated research across multiple sectors that go to 150 customers. If one doesn’t know the new info, that one is at a disadvantage. When we find good data, we sometimes put it up for auction. The top four bidders get it. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Once there is a lot of data available, it can be tailored to meet individual needs. There is a cost to exclusivity. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> As the buyside hires more analysts, they'll consume more outside research. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Fidelity is spending $150 million to dramatically expand their research desk. What's the implication for everyone else? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> Fund managers generally subcontract research. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Have these changes in the market changed what you deliver to clients? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> Yes, in a negative way. The sell-side is spending a lot of time educating new MBAs/inexperienced analysts. This is not good value-added and creates commoditization. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Must consider the cost of "maintenance research" for that 2nd year MBA, who is not thinking about what to do with underlying security. This is a sub-optimal allocation of resources. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Fidelity cannot hire the 200 smartest people and no longer need the outside world. This is a flawed economic model! Much rather have access to a large pool of outside experts, which will create aggregate value-added. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Moving away from Fidelity, another development that may have more long term consequences, is that the FSA (in UK) has mandated that asset managers have to tell clients how much of their money is spent on research versus execution. What are the implications of this change? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> Fidelity is the first bulge bracket firm to understand that they have been paying lots of money to research companies to access the same information, while hedge funds pay significantly less. They are subsidizing the smaller players. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> You mentioned unbundling => What do you think are the reasons why Fidelity and Lehman are unbundling? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> A few reasons: </p> <p class="MsoPlainText"> + Fidelity could do this partly because of their unique ownership structure (family, not public company or partnership like the other top 20 managers). They wanted to move towards hard dollars. </p> <p class="MsoPlainText"> + Fidelity also knew that it was going to face more scrutiny from independent mutual fund boards. </p> <p class="MsoPlainText"> + Regarding Lehman, it is clear that they had an underleveraged proprietary trading opportunity and wanted to build a proprietary desk---leveraging Fidelity's volume and the information they could learn from Fidelity. They were trailing the bulge bracket in prop trading. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> Fidelity also did this move for dwarf-related reasons. (industry joke) </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong> </p> <p class="MsoPlainText"> There are macroeconomic trends towards unbundling, simply because it's better for the retail investors---the widows and orphans whom the money managers are in theory supposed to be working for. However, there is tremendous inertia preventing change. A lot of people make a lot of money from the existing ecosystem. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Given the move towards hard dollars, the total research budget probably won't change that much (although it could shrink). However, the allocation will change dramatically. A lot of sell-side research is simply not worth much, but there is no price signal in the market to tell that fact to the sell side. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Fidelity is attempting to reduce competition by raising the cost structure. This will hurt investors. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong> </p> <p class="MsoPlainText"> Middle sized managers should consider taking the lead with a move towards hard dollars. This creates more value for clients, and is a powerful differentiator in marketing. In David Swensen's (Chief Investment Officer of Yale) new book, <em>Unconventional Success, </em>he specifically endorses a few fund companies that he believes align manager interests with investor interests. Wouldn't your company also like to be endorsed by David Swensen? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Has Regulation FD improved the situation for investors? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> No, it has created a communications barrier. Unintended consequences have resulted, similar to everything else the regulators have ever done. It makes management much more scripted. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong>: </p> <p class="MsoPlainText"> We use technology to (metaphorically) stand outside the Applebee's store and analyze their foot traffic. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Performance of sell-side research has noticeably improved. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> Since 2000 => 100% better results => the bar has been raised in sell-side research. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>QUESTIONS FROM THE AUDIENCE:</strong> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Scott Lichtman</strong> </p> <p class="MsoPlainText"> Regulation and innovation has raised the bar on research. What are best practices for valuing ROI on research? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Growing number of people are concerned about rigorous process in valuing research if the client will learn the cost of unbundling research. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> Traditional payment mechanisms put payment in the eye of the beholder. We are willing to be price-takers; we believe in the value of our product. </p> <p class="MsoPlainText"> “Beauty is in the eye of the beholder" => that's how people evaluate research </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong> </p> <p class="MsoPlainText"> Amount of time talking with a source is a possible (very rough) proxy in valuing research. That proxy could theoretically be used for both traditional research analysts as well as for industry sources. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> Two bizarre practices in this industry: </p> <p class="MsoPlainText"> - We give stuff away. </p> <p class="MsoPlainText"> - Consumer says what it's worth long after the product has been consumed. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> This bizarre system only works because the buy side is playing with Other Peoples' Money. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> This is comparable to purchasing a plasma screen from Best Buy, and determining how much you will pay a year later! </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong> </p> <p class="MsoPlainText"> Counterintuitively, I recently read a <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=436686">Harvard study</a> which found that "Analysts at firms with underwriting and trading businesses are actually less optimistic than those at pure brokerage houses, who perform no underwriting. The relatively less optimistic forecasts for underwriting firms are not fully explained by bank reputation. Nor is the relative optimism of brokerage firms explained by the types of clients they serve (retail or institutional). We conclude that sales and trading activities used to fund research create strong incentives for analyst optimism." </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Or in plain English: Anyone who is a broker-dealer has a strong motivation to get you to trade, regardless of whether or not it's in your interest. This is exactly the same conflict of interest that has motivated much of the retail brokerage industry to move away from trade-based payment to wrap fee accounts (in which the broker is paid on a percentage of assets basis.) </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Maybe the best advice you'll hear this week is to 'Hold' Google. Don't sell, don't buy---just sit there with your position. But one of the many conflicts of interest that soft dollars create is that you don't have a ready way to pay an analyst to tell you that---and the analyst is highly motivated <em>not </em>to tell you to Hold. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Michael Mayhew</strong> </p> <p class="MsoPlainText"> Problem: Too much supply of research. By placing value, we will let the market erase the inefficiencies. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> One portfolio manager I know says that he gets 500 emails/day, and 100 calls/day, and most of them are research of various sorts. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Doug Atkin</strong> </p> <p class="MsoPlainText"> If Wall Street were actually using their own money, they wouldn’t allow for such inefficiencies. 20% Wall Street research is great. 10% independent research is great; just because it's indie doesn't mean it's good. There are 450 independent research providers in North America---most of them are not very good. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong> </p> <p class="MsoPlainText"> There's a fear of a bulge bracket conspiracy. It's not in anyone’s interest to make equities market look like the fixed income market. Hopefully, technology will prevent this from happening. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Question from audience (older HBS graduate)</strong> </p> <p class="MsoPlainText"> What's your advice for the retail investor on how to make sense of all the research out there? </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>David Teten</strong> </p> <p class="MsoPlainText"> Almost every neutral academic observer will tell you that retail investors should not buy individual securities; you should buy funds. New HBS graduates often assume that they're brilliant stock market investors, but you've probably been out a few years and seen that the degree does not necessarily grant you investing acumen. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Unless you made your retirement money by investing in securities, then you probably don't have the training to be a successful professional investor. You're much better off with funds. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> Regulation FD was based on the idea of leveling the playing field between retail investors and institutions. This is nonsense; you will never level the playing field between retail investors and institutions. it was a poor answer to a question that no one was asking. </p> <p class="MsoPlainText"> <strong>Lisa Shalett</strong>: </p> <p class="MsoPlainText"> I agree with David and take it one step further: in most cases, you should be investing in index funds. Actual usage of the much-hyped research settlement is paltry. The individual investor already has far too much information, but doesn't know what to do with it. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <strong>Gautam Ramchandani (Harvard Business School Club Officer)</strong> </p> <p class="MsoPlainText"> Thank you all for coming! I hope to see you at our upcoming 5/18 Hedge Fund event, which will feature many of the brightest luminaries in the hedge fund world. See our site, <a href="http://www.hbsconnecticut.org">http://www.hbsconnecticut.org</a>, for details. </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> <em>(David Teten's slides for his presentation are available on request by mailing info @ nitronadvisors.com .)</em> </p> <p class="MsoPlainText"> </p> <p class="MsoPlainText"> </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=267" /> http://www.circleofexperts.com/blog/CommentView.html?guid=267 General Public Markets Investing Securities Research http://www.circleofexperts.com/blog/Trackback.html?guid=205 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=205 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=205 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=205 BusinessWeek has a good piece about the expert-matching industry (page 52 of the current issue):
"We cut out the analysis that clients are perfectly capable of doing themselves," says David Teten, chief executive of New York's Nitron Advisors LLC, which set up shop in late 2003.
More BusinessWeek covers expert matching industry, Nitron Advisors http://www.circleofexperts.com/blog/PermaLink.html?guid=205 http://www.circleofexperts.com/blog/BusinessWeek+Covers+Expert+Matching+Industry+Nitron+Advisors.html Fri, 22 Jul 2005 12:28:27 GMT BusinessWeek has a good piece about the expert-matching industry (page 52 of the current issue): <blockquote>"We cut out the analysis that clients are perfectly capable of doing themselves," says David Teten, chief executive of New York's <a href="http://www.nitronadvisors.com">Nitron Advisors LLC</a>, which set up shop in late 2003. </blockquote> <a href="http://businessweek.com/magazine/content/05_31/b3945068_mz020.htm">More</a><img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=205" /> http://www.circleofexperts.com/blog/CommentView.html?guid=205 General Social Software Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=193 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=193 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=193 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=193 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.
Putting fear of God into a portfolio company CEO http://www.circleofexperts.com/blog/PermaLink.html?guid=193 http://www.circleofexperts.com/blog/Putting+Fear+Of+God+Into+A+Portfolio+Company+CEO.html Thu, 02 Jun 2005 07:32:00 GMT From <a href="http://www.businessweek.com/the_thread/dealflow/archives/2005/06/unbridled_audac.html?campaign_id=rss_blog_dealflow">"Unbridled Audacity"</a>: <blockquote>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 <a href="http://www.donkeynation.com/Letter.pdf">this</a>.</blockquote><img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=193" /> http://www.circleofexperts.com/blog/CommentView.html?guid=193 Private Equity Investing Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=182 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=182 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=182 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=182 Danyel Fisher of Microsoft writes:
So you've got a spreadsheet with hierarchical data. Something like this, say, which shows how different divisions of XYZ corp are doing at sprocket, widget, and screw sales:




Unfortunately, it's kind of hard to read this. How much overhead is in Sprockets but not in one of the subdivisions? Where are the trouble spots?

This is, of course, where data visualization comes in.



This draws regions' size as the number of employees, and the color linked to profit or loss.

And now, you can just click one button in Excel to get it. More For an example of a map of the stock market with this approach, see SmartMoney's MarketMap. Microsoft Excel Treemapper http://www.circleofexperts.com/blog/PermaLink.html?guid=182 http://www.circleofexperts.com/blog/Microsoft+Excel+Treemapper.html Thu, 12 May 2005 15:34:45 GMT Danyel Fisher of Microsoft writes: <blockquote>So you've got a spreadsheet with hierarchical data. Something like this, say, which shows how different divisions of XYZ corp are doing at sprocket, widget, and screw sales:</blockquote> <br /> <br /> <img src="http://raindrop.msresearch.us/resources/danyelf/spreadsheet_sm.JPG" /> <br /> <p> <br /> <blockquote>Unfortunately, it's kind of hard to read this. How much overhead is in Sprockets but not in one of the subdivisions? Where are the trouble spots?<br /> <br /> This is, of course, where data visualization comes in.</blockquote> <br /> > <img src="http://raindrop.msresearch.us/resources/danyelf/image004.jpg" /> <br /> <p> <br /> <blockquote>This draws regions' <b>size </b>as the number of employees, and the color linked to <b>profit or loss</b>.<br /> <br /> </blockquote> And now, you can just click one button in Excel to get it. <a href="http://raindrop.msresearch.us/id/1000179/default.html">More</a> For an example of a map of the stock market with this approach, see <a href="http://www.smartmoney.com/marketmap/">SmartMoney's MarketMap.</a>> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=182" /> http://www.circleofexperts.com/blog/CommentView.html?guid=182 General Personal Productivity Public Markets Investing Securities Research
http://www.circleofexperts.com/blog/Trackback.html?guid=179 http://www.circleofexperts.com/blog/pingback.html http://www.circleofexperts.com/blog/PermaLink.html?guid=179 David Teten http://www.circleofexperts.com/blog/CommentView.html?guid=179 http://www.circleofexperts.com/blog/SyndicationService.asmx/GetEntryCommentsRss?guid=179 1

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!

Get complimentary copy of new book, The Virtual Handshake: Opening Doors and Closing Deals Online http://www.circleofexperts.com/blog/PermaLink.html?guid=179 http://www.circleofexperts.com/blog/Get+Complimentary+Copy+Of+New+Book+The+Virtual+Handshake+Opening+Doors+And+Closing+Deals+Online.html Thu, 05 May 2005 06:09:34 GMT <p> I've been quiet on this blog for the last month, because we've been completing a major redesign. </p> <p> I'd welcome feedback on the completely redesigned site, <a href="http://teten.com">Teten.com</a>, courtesy of Jason Coward at <a href="http://opengeek.com">OpenGeek</a>. </p> <p> In separate news: </p> <p> &nbsp;Are you interested in reading a preview copy of my forthcoming book, <em><a href="http://thevirtualhandshake.com/order-amazon.htm">The Virtual Handshake: Opening Doors and Closing Deals Online</a></em>? </p> <p> 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. </p> <p> &nbsp;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. </p> <p> &nbsp;More technically, this is the first mass market book about “<a href="http://www.socialsoftwareguide.com">social software</a>": blogs, social networking sites, relationship capital management software, and so on. </p> <p> &nbsp;The CEOs of many of the leading companies in this industry have already <a href="http://thevirtualhandshake.com/buzz.htm">raved</a> 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 <em>Influence</em>), 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 <a href="http://www.amanet.org/index.htm">American Management Association</a>, and are now seeking reviewers. </p> <p> &nbsp;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. </p> <p> Extensive information about the book, including a blog and resource center, are at <a href="http://TheVirtualHandshake.com">TheVirtualHandshake.com</a>. If appropriate, you may also be interested in joining our <a href="http://thevirtualhandshake.com/affiliate-amazon.htm">Amazon affiliate program</a>. Thank you! </p> <img width="0" height="0" src="http://www.circleofexperts.com/blog/aggbug.ashx?id=179" /> http://www.circleofexperts.com/blog/CommentView.html?guid=179 Career Acceleration General Leadership and Management Personal Productivity Private Equity Investing Public Markets Investing Securities Research Social Software