The newest job in Wall Street research is “global coordinator.” Diplomats, not divas, are invited to apply.
By Contributing Editor Jeanne Burke
December 2000
Institutional Investor Magazine
The newest job in Wall Street research is “global coordinator.” Diplomats, not divas, are invited to apply.
As Merrill Lynch’s Latin American financial institutions analyst based in New York, Alex Schecter figures that he has visited South America 20 times over the past five years to meet company managements and to market research to clients. Until a few months ago, though, the Argentina native never expected he,d be making the same trips to Tokyo.
In June the 33-year-old gave up his stock coverage to author Merrill’s first truly integrated global bank research, a job switch that’s already taken him not only to Tokyo but also to Singapore, Hong Kong, Madrid and Milan to meet with the firm’s 30 regional bank analysts. Schecter is part of a new breed of Wall Street analyst: the global industry research coordinator. Schecter’s brief is to champion Merrill,s global research on financial institutions, an effort the firm is now duplicating in sectors that include energy, pharmaceuticals, technology and telecommunications.
“I was used to looking at several countries when covering Latin America, but now I consider more than 60 countries, with a long-term view,” Schecter says.
Generally, global coordinators integrate all of a firm’s regional stock coverage and research ideas to create a unified view for each industry sector. Beyond that, the role defies easy description. The coordinators may or may not have their own stock coverage and may or may not make their own securities recommendations. In Schecter’s case, the job might involve comparing Bank of America Corp. in the U.S. with Japan’s Sumitomo Bank and Germany’s Dresdner Bank to discern which is most undervalued.
The post requires flexibility and a salesman,s instincts. Coordinators must organize team conference calls (often at ungodly hours to accommodate analysts dispersed around the world) to discuss recent events and investment themes. They must reconcile differing analyst opinions and, in many cases, write the final research piece. Diplomacy , with colleagues and clients , is also a must, as global coordinators not only sell their services to investors but may at times be pitching the merits of global research to skeptical fellow analysts as well.
The creation of the global coordinator position represents the latest milestone in a journey that Wall Street’s been on for the better part of ten years. A few buy-side firms, such as Franklin Templeton Investments, pioneered global investing, and the sell side has been trying , at times belatedly , to keep pace with growing research demands. The recent wave of huge multinational mergers has given the global efforts new immediacy.
“Globalization has been under way for a long time, but now it’s hit critical mass,” says Ian Vose, head of U.K./European equities and research for London-based Dresdner RCM Global Investors (U.K.), which manages about $140 billion in equities. To appreciate the importance of a global view, investors need look no further than DaimlerChrysler, the Stuttgart, Germany,based carmaker recently humbled by management missteps at its U.S. operations in Auburn Hills, Michigan.
Already in place at Deutsche Bank Securities, Merrill Lynch, Morgan Stanley Dean Witter and UBS Warburg, the new coordinator position is in the works at many other brokerage houses, including ABN Amro, Credit Suisse First Boston and Salomon Smith Barney. Says Gary Baker, director of Merrill’s global industry research product, “To get to the next step, we felt we needed to put in some resources.”
The highest-ranked firms in Institutional Investor,s 2000 Global Research Team all endorse the notion of a global research coordinator. Not surprisingly, they are also among the banks that have been aggressively expanding across borders. MSDW finishes at the top of the heap, as it did last year, though its lead has narrowed slightly. Goldman and Merrill tie for No. 2, a reprise for Goldman and a step up from third for Merrill. Placing fourth again is UBS Warburg; in a close fifth, Salomon. The sixth position goes to Deutsche Bank Securities, which more than doubles its team positions and climbs two notches. CSFB slips one rung to seventh, while J.P. Morgan falls two notches to eighth. DLJ and Lehman Brothers tie for ninth.
Institutional Investor treated CSFB and DLJ as separate entities this year because CSFB’s acquisition of DLJ was not finalized until November, after our polling period had ended and following our cutoff date for job-hoppers. Aggregating the votes for both firms would lead to shifts in several global sector lineups. These changes, which assume no attrition of analysts at either firm and no restructuring of coverage, would lift CSFB’s rankings in eight sectors and give the firm five additional team positions. In Banking & Financial Services, CSFB would rise to second place from runner-up; in Capital Goods the firm would rise to No. 1 from No. 2; in Insurance CSFB would claim the third spot; and in Retailing the firm would leap to second from runner-up. The new firm would also gain runner-up positions in Oil & Gas, Pharmaceuticals, Telecommunications and Economics.
The need for more-comprehensive equity research on multinational companies is just one driver of global analysis. Investment banking firms also understand that broad distribution is key in competing for jumbo underwriting deals. Leading players continue to merge in a bid to achieve global reach (and to avoid falling into the second tier): In the past year UBS Warburg bought PaineWebber, CSFB picked up Donaldson, Lufkin & Jenrette, and Chase Manhattan Corp. agreed to acquire J.P. Morgan. All three deals reflect the current consensus on Wall Street that benefits accrue to those with size and geographic scope. “Very often, a large non-U.S. equity or merger financing deal needs to be sold globally , and simultaneously,” says Guy Moszkowski, brokers and asset managers analyst for Salomon. “An investment banking firm can,t aspire to call itself a global force if it doesn,t have strong distribution around the world and can,t tap into the rich U.S. markets.”
Even more than their sell-side counterparts, asset managers are expanding worldwide to create their own client platforms. Says William Landes, Putnam Investments, chief investment officer for global asset allocation and quantitative research, “Global assignments are the fastest-growing part of our business, up from zero three years ago.” Fidelity Investments and Alliance Capital Management also report that mandates for global products are increasing at a greater rate than either regional or domestic assignments. As companies like the U.K.'s BP Amoco, which last year took over U.S.-based Atlantic Richfield Co., bring in thousands of new employees around the world, they increasingly want to offer retirement benefit programs with investment choices that combine local and global stocks, usually along sector lines.
The plethora of cross-border money management consolidations also hastens this initiative. As asset managers integrate international acquisitions, their viewpoint , and investment capabilities , naturally become broader, though exchange risks will continue to keep many assets segregated by country for the foreseeable future. In the past year South Africa,based Old Mutual has acquired United Asset Management Corp. of Boston, Munich-based Allianz has agreed to buy Nicholas-Applegate Capital Management, headquartered in San Diego; and Chase Manhattan has bought London-based Robert Flemings Group, whose Jardine Fleming unit provides an instant presence in Asia. “That creates a global perspective, because parts of your platform are based around the world. You want to leverage that, so you start communicating and exchanging ideas, switching to a global mind-set,” explains Dresdner’s Vose, whose firm manages funds out of Frankfurt, London and San Francisco.
At the same time, pension reform is spreading to places like China, Hungary, India, Italy and Russia, opening new opportunities for global firms. UBS Asset Management, for example, the world’s largest money management firm, has just completed a massive reorganization of the research departments of two of its subsidiaries, London-based Phillips & Drew and Chicago-based Brinson Partners. Now each analyst tracks stocks globally along sector rather than geographic lines. Deutsche Asset Management, meanwhile, has moved its investment decision making onto a global footing. The changes are part of a major effort to offer pension products and reporting services to multinational corporations. As Putnam’s Landes notes, many pension plan sponsors, even in the U.S., are replacing the traditional split between international and domestic portfolios with a single global portfolio. Their goal: to avoid excess exposure to U.S. markets.
This year’s winning teams earned their high marks with little help from the world’s equity markets. The best-performing exchanges (in local currency terms) were up slightly through late November, though most others were down. In Indonesia and the Philippines, stock indexes fell more than 30 percent through late November. South Korea and Taiwan fared even worse. Argentina, Brazil and Mexico were all looking at double-digit losses for the same period. The picture in Europe was more mixed. Italy and Switzerland were mildly higher as November closed, while Germany, Spain, Sweden and the U.K. were down.
For dollar-based investors, the results were even bleaker: In late November Dow Jones global indexes for Asia, Europe and Latin America were all suffering double-digit losses. Depressing all global indexes, regardless of currency, was the U.S. market, where the Dow and the Standard & Poor’s 500 index were down more than 9 percent and the Nasdaq had lost more than 30 percent.
When it came to country performance, it took pinpoint accuracy to earn healthy returns in 2000: Australia, Canada, China, Denmark and Venezuela were among the very small group of countries with solidly performing stock markets.
To locate opportunities in far-flung places, sell-side firms have finally conceded that they can,t simply lean harder on their senior analysts to produce “global” research as a sideline. Given the 80-hour weeks top researchers already clock, such assignments accomplish little beyond dampening morale. “If they,re already high-ranked analysts, you can,t ask them to take a night job and be global head, too,” says Alfred Jackson, global research director for CSFB, where product coordinators have been appointed in ten sectors this year.
Forcing several analysts, opinions together in cut-and-paste research reports hasn,t worked, either. “At some firms the strategists don,t even have the same views,” says Norman Boersma, director of global equity research for Templeton Asset Management. “If you have different assumptions from different regions, then you clearly have a problem.”
Enter the global coordinator, whose mission is to identify the global themes in a firm’s industry research and (sometimes) market those ideas to clients. Each firm defines the role a little differently. At CSFB and UBS Warburg, the coordinator is out in front, presenting stock analysis and investment themes to clients. Salomon, meanwhile, prefers a behind-the-scenes coordinator who has no equities coverage or much direct contact with investors. “They will invent the job as they go along,” says John Hoffmann, Salomon’s director of global equity research.
Most firms are naming lower-profile analysts to this position, in hopes of avoiding the bruised egos that can result when the most-senior analyst is not the person who writes the worldwide sector research. “Analysts are like opera singers, and between temperament and money, you have to find ways to deal with them,” Jackson says. It helps that brokerage firms are choosing global coordinators from their internal ranks, usually from within the team itself. “You try to pick collegial, supportive people who will help rather than hurt communication,” explains Hoffmann.
Firms have also made a concerted effort to ensure that senior analysts are directly involved in creating the global product. In early November Merrill,s Schecter toured Asia with Judah Kraushaar, the firm,s U.S. bank analyst (and the 2000 All-America Research Team first-teamer in multinational banks). The two met with nearly 100 portfolio managers to introduce their new global research. They also attended an Asian banking conference in Singapore. “With Alex, we now have the resources to put together a more structured, regular [global] product,” says Kraushaar.
Could a firm publish an integrated product if the global coordinator and a senior analyst drew different conclusions? Research directors don,t anticipate conflicts, because global industry coordinators have as much internal clout as senior industry analysts, often reporting directly to the global head of research. The fact that both serve different clients with different objectives also provides some leeway for different views. Regional researchers should be able to leverage off the global product for their own work as well. “And any time you can take some demands off the analysts, plate, they react well,” says Merrill’s Baker.
Despite the potential benefits of a distinct global face, most firms admit that the selection of a coordinator and a handful of other initiatives don,t solve all the problems inherent in global research. Time zones and language barriers still hamper communication among analysts, and personality conflicts, vying ambitions and even cultural differences can undermine the effort, no matter how persuasive the coordinator may be. Last, cross-border analysis is itself a complex exercise, involving different currencies, accounting rules and financial definitions. Technology can help speed and democratize information, but it can,t overcome human nature.
Investors appreciate some of the strides Wall Street firms have made in the past year, but, as always, they want more. Models that make useful global industry comparisons are still the exception, not the rule, they say. And, although the sell side has beefed up its analytical staff, most firms haven,t quite made the leap from global presence to global product. “While many firms have large groups in Europe, Japan and North America, opinions are very decentralized,” says Putnam’s Landes.
In fact, some investors would like Wall Street research to shift to customized projects, leaving the nitty-gritty of trend analysis and earnings estimates to the growing legion of buy-side analysts. “We don,t want the same thing [from Wall Street] as our own people are doing , we want the Street to dig deeper,” says one research director for a large fund manager. Smaller funds, which rely on sell-side earnings estimates and stock picks, obviously wouldn,t want the major firms to abandon those areas. All of this leaves brokerage firms with a familiar dilemma: how to be all things to all clients.
Investors seem to accept the “two steps forward, one step back” nature of Wall Street’s global research effort. “It is getting better on the sell side,” says Dresdner’s Vose. “Putting together coordinators is the first stage, and what’s falling out of that is a global way of operating.”
Global Research Team Methodology
In this, our fourth annual look at global sell-side research, Institutional Investor asked fund managers around the world to rate brokerage firm research in more than two dozen equity categories and investment specialties. Approximately 350 buy-side analysts, portfolio managers and research directors responded, representing about 140 money management institutions in the U.S., U.K., continental Europe and Asia.
Our reporters spent weeks on the phone with voters to learn more about the research teams they had selected. In addition, many of the winners were contacted to clarify points their clients had raised, to confirm certain stock prices and to get their own assessments of the year gone by.
Because this is a team ranking, votes for specific firms and the individual analysts working for those firms were combined to arrive at a single team total. Deciding who should be highlighted in categories where votes are aggregated can be difficult. Typically, the researcher featured is either the head of the squad or the analyst recognized most frequently by investors.
The overall leaders table is based on the total number of teams each firm placed in our rankings. The weighted leaders table shows the results when firms are assigned a numerical total reflecting how their teams ranked in each category. In this case, brokerage houses received 4 points for first place, 3 for second, 2 for third and 1 for a runner-up position. These numbers were then added up to derive a weighted ranking. Unlike II’s other research team rankings, votes were not weighted by the size of the institution, given the difficulty of computing , or even defining , global assets under management.
The identities of the survey respondents and the institutions that employ them are kept confidential to ensure their continuing cooperation. In addition to Institutional Investor’s rankings of top money managers in the U.S., Europe and Asia, published buy-side directories and other data sources were tapped to make certain that the survey universe was complete. Global research directors also submitted lists of their most important clients, many of whom were contacted.
We,ve refined our sector lineup this year based on feedback from both global fund managers and brokerage firms. Last year’s Retailing/Food and Retailing/General categories were combined into a single Retailing sector; we also added Metals & Mining to last year’s Steel category. Three equity sectors (Building & Construction, Lodging and Transportation) and one macro category (Convertibles) were eliminated.
One additional note: To meet this magazine,s production schedule, votes for analysts who changed firms after October 9 are credited to their previous organization. We counted Credit Suisse First Boston and Donaldson, Lufkin & Jenrette as separate entities because CSFB’s acquisition of DLJ was not finalized until November, after our polling period had ended and after the cutoff date.
What follows is our ranking of the best sell-side research teams in 23 global investment specialties, with synopses of what makes these groups stand out from the crowd. It was compiled by Institutional Investor staff under the direction of Senior Editor Carolyn Sargent and Senior Associate Editor William Gaston. The overview was written by Contributing Editor Jeanne Burke. Burke and Contributing Editors Andrew Bloomenthal, Mary D,Ambrosio, Suzanne Lorge, Ben Mattlin and Giles Peel wrote or edited the sector reports that follow.
