Hedge funds and other institutional money managers are paying for personalized research, according to Cogent Consulting. The Summit, N.J.-based firm, which represents clients with more than $3 trillion in assets under management, found that HFs and others are paying broker-dealers and other third-party research providers up to 50% of their trading commissions mainly for six additional services more tailored to their needs. These include:
- One-on-one meetings between buyside investor and management.
- Specific long or short stock recommendations created by brokers, including when to buy and sell and how much to invest.
- Expert networks, which bring together experts in industries with investors.
- Analyst telephone calls and e-mails, for more in-depth insights.
- Custom research for specific projects
- Investor conferences.
"The buyside appears to have redefined Wall Street," says Robin Hodgkins, president and CEO of Cogent. "Traditional reports, which feature estimates and commentary on company developments, are just the tip of the iceberg." In the past, says Hodgkins, money managers would focus on one general category of research. That’s changed, however, he notes, as "clients are asking us to set up their votes so they can review a broader combination of research products and services, depending on the buyside firm’s investment approach." Hodgkins attributes the increased interest in research to several trends: The fact that brokerage firms and research analysts have created new roles in this area; regulators here and in the U.K. have clarified the use of trading commissions to pay for research; new technology makes its faster and easier to "quantify the value of research" being distributed and consumed; The growing number of proprietary trading desks and actively managed hedge funds have increased the demand for more and diverse forms of research.
