A Top Retail Analyst Takes Her Rolodex Into
Independent Research By MICHAEL J. de la MERCED (FROM NYT)
Dana L. Telsey is a familiar face on CNBC and the �Today� show, making observations on the retail industry. Since August, however, she has been appearing not as a retail industry analyst for Bear Stearns, but as the chief of her own firm.
On Aug. 1, she initiated coverage of nearly 40 retail companies at her boutique research firm, the Telsey Advisory Group, providing analyses on businesses as diverse as Target and Tiffany.
�This is the right time for constructing a research firm; I think the demand for it is there,� Ms. Telsey, 43, said in her Midtown Manhattan office, around the corner from a Best Buy and a J. Crew and a few blocks from a gleaming string of Fifth Avenue shops.
Yet there is also evidence that this is a challenging time to start an independent research firm. Nearly four years after Wall Street made a sweeping settlement with regulators over conflicts involving research analysts, research is a commodity whose value has come increasingly into question.
In the 2003 settlement, Wall Street�s 10 major investment banks paid $1.4 billion. About $450 million of that was designated as subsidies for independent research, or that unattached to one of the major investment banks.
Yet despite those subsidies, which will expire in three years, third-party research still faces high hurdles. A study done this year by Integrity Research, a consulting company that tracks the research industry, found that independent research has had mixed success in the years since the global settlement.
The study concluded that the independent research sector could expect waves of consolidation as firms struggled to find viable business models. Within the
last year alone, at least four major independents, including big names like Fulcrum Global Partners and the Precursor Group, have either sold their research businesses or closed.
Several factors have contributed to such woes, according to the chairman of Integrity Research, Michael Mayhew. A vital source of revenue dried up as the use of soft dollars � or extra commissions that institutional investors pay the brokerage unit of such firms to finance the research � declined.
Moreover, the field has become increasingly crowded, putting the squeeze on third-party analyst firms, especially those in the fundamental research business. While established giants like Sanford C. Bernstein & Company have and will continue to thrive, Mr. Mayhew
said, smaller players that proffer only buy-sell-hold ratings and financial modeling have found their wares increasingly ignored.
The nature of research has changed as hedge funds have emerged as a dominant market force. A recent survey by Greenwich Associates, a consulting firm, found that the number of hedge funds that said they had increased their business with a particular dealer as a reward for valuable research increased to 42 percent his year, from 19 percent in 2005.
And hedge funds increasingly favor research shops that can provide proprietary analysis, often based on expert knowledge.
According to the Integrity Research report, newer models like expert-network providers, which link customers to an array of industry specialists rather than provide their own research, have grown sharply. A firm like the Gerson Lehrman Group has been very
successful in developing expert networks for its clients to tap into.
Forensic accounting shops, which are not new but are not widespread, have found some success with hedge funds, especially those focused on short-selling, or bets that particular stocks will fall in price. And those firms that can offer access to companies� management teams hold great allure for hedge funds seeking a trading edge.
�For fundamental research firms, if you don�t offer management access, it�s going to be hard to find someone on the buy side who will pay you,� Mr. Mayhew said.
Yet the landmark Wall Street settlement did help promote the value of independent research.
�This turning the spotlight on the independent industry has helped give independents additional credit and the opportunity to work with these hedge funds, because independent research has become a little more mainstream now,� said John M. Eade,
president and director of research at Argus Research.
Despite the challenges, Ms. Telsey maintains that her firm offers a model new enough and sophisticated enough to be successful.
While the Telsey Advisory Group, which has a staff of 27, offers fundamental research, it also does channel checks, or inspections of stores, warehouses and supply lines to determine whether a company can meet its predicted sales. It offers no buy, hold or sell
ratings, instead giving long-term assessments that look forward at least a year.
Because it has no brokerage or investment banking arms, Telsey Advisory Group can focus purely on research, Ms. Telsey said. That product also features exclusivity: its analyses are not published on First Call, a major clearinghouse for research notes. Instead, clients access the notes through Telsey Advisory Group�s Web site (telseygroup.com).
�A lot of our independence comes from our subscription model,� Ms. Telsey said. �And clients can help guide our research. We follow what our clients want.�
Yet while other independents offer similar products, Telsey Advisory Group has one unique difference. That would be Ms. Telsey herself, who says her experience and fat Rolodex enable her to sniff out trends that others cannot.
Ms. Telsey began working at Baron Capital as assistant to its founder, Ron Baron, rising to become vice president of its Baron Asset Fund. She then moved to C. J. Lawrence, eventually becoming its retail analyst.
In 1994, Ms. Telsey joined Bear Stearns, developing a specialty in luxury retail. By the time she left in March as a senior managing director, she had tracked more than 70 companies and racked up several awards, including being ranked by Institutional Investor magazine as the No. 1 analyst in her sector seven times.
With the white canvas that is Telsey Advisory Group before her now, Ms. Telsey said, the challenge is to put the ideas she has mulled for years to the test.
�I�ve always asked, �How much better could this be?� � she said. �Now we�re challenging the bulge brackets, and we have a lot more control over our time and our research.�
Independent Research By MICHAEL J. de la MERCED (FROM NYT)
Dana L. Telsey is a familiar face on CNBC and the �Today� show, making observations on the retail industry. Since August, however, she has been appearing not as a retail industry analyst for Bear Stearns, but as the chief of her own firm.
On Aug. 1, she initiated coverage of nearly 40 retail companies at her boutique research firm, the Telsey Advisory Group, providing analyses on businesses as diverse as Target and Tiffany.
�This is the right time for constructing a research firm; I think the demand for it is there,� Ms. Telsey, 43, said in her Midtown Manhattan office, around the corner from a Best Buy and a J. Crew and a few blocks from a gleaming string of Fifth Avenue shops.
Yet there is also evidence that this is a challenging time to start an independent research firm. Nearly four years after Wall Street made a sweeping settlement with regulators over conflicts involving research analysts, research is a commodity whose value has come increasingly into question.
In the 2003 settlement, Wall Street�s 10 major investment banks paid $1.4 billion. About $450 million of that was designated as subsidies for independent research, or that unattached to one of the major investment banks.
Yet despite those subsidies, which will expire in three years, third-party research still faces high hurdles. A study done this year by Integrity Research, a consulting company that tracks the research industry, found that independent research has had mixed success in the years since the global settlement.
The study concluded that the independent research sector could expect waves of consolidation as firms struggled to find viable business models. Within the
last year alone, at least four major independents, including big names like Fulcrum Global Partners and the Precursor Group, have either sold their research businesses or closed.
Several factors have contributed to such woes, according to the chairman of Integrity Research, Michael Mayhew. A vital source of revenue dried up as the use of soft dollars � or extra commissions that institutional investors pay the brokerage unit of such firms to finance the research � declined.
Moreover, the field has become increasingly crowded, putting the squeeze on third-party analyst firms, especially those in the fundamental research business. While established giants like Sanford C. Bernstein & Company have and will continue to thrive, Mr. Mayhew
said, smaller players that proffer only buy-sell-hold ratings and financial modeling have found their wares increasingly ignored.
The nature of research has changed as hedge funds have emerged as a dominant market force. A recent survey by Greenwich Associates, a consulting firm, found that the number of hedge funds that said they had increased their business with a particular dealer as a reward for valuable research increased to 42 percent his year, from 19 percent in 2005.
And hedge funds increasingly favor research shops that can provide proprietary analysis, often based on expert knowledge.
According to the Integrity Research report, newer models like expert-network providers, which link customers to an array of industry specialists rather than provide their own research, have grown sharply. A firm like the Gerson Lehrman Group has been very
successful in developing expert networks for its clients to tap into.
Forensic accounting shops, which are not new but are not widespread, have found some success with hedge funds, especially those focused on short-selling, or bets that particular stocks will fall in price. And those firms that can offer access to companies� management teams hold great allure for hedge funds seeking a trading edge.
�For fundamental research firms, if you don�t offer management access, it�s going to be hard to find someone on the buy side who will pay you,� Mr. Mayhew said.
Yet the landmark Wall Street settlement did help promote the value of independent research.
�This turning the spotlight on the independent industry has helped give independents additional credit and the opportunity to work with these hedge funds, because independent research has become a little more mainstream now,� said John M. Eade,
president and director of research at Argus Research.
Despite the challenges, Ms. Telsey maintains that her firm offers a model new enough and sophisticated enough to be successful.
While the Telsey Advisory Group, which has a staff of 27, offers fundamental research, it also does channel checks, or inspections of stores, warehouses and supply lines to determine whether a company can meet its predicted sales. It offers no buy, hold or sell
ratings, instead giving long-term assessments that look forward at least a year.
Because it has no brokerage or investment banking arms, Telsey Advisory Group can focus purely on research, Ms. Telsey said. That product also features exclusivity: its analyses are not published on First Call, a major clearinghouse for research notes. Instead, clients access the notes through Telsey Advisory Group�s Web site (telseygroup.com).
�A lot of our independence comes from our subscription model,� Ms. Telsey said. �And clients can help guide our research. We follow what our clients want.�
Yet while other independents offer similar products, Telsey Advisory Group has one unique difference. That would be Ms. Telsey herself, who says her experience and fat Rolodex enable her to sniff out trends that others cannot.
Ms. Telsey began working at Baron Capital as assistant to its founder, Ron Baron, rising to become vice president of its Baron Asset Fund. She then moved to C. J. Lawrence, eventually becoming its retail analyst.
In 1994, Ms. Telsey joined Bear Stearns, developing a specialty in luxury retail. By the time she left in March as a senior managing director, she had tracked more than 70 companies and racked up several awards, including being ranked by Institutional Investor magazine as the No. 1 analyst in her sector seven times.
With the white canvas that is Telsey Advisory Group before her now, Ms. Telsey said, the challenge is to put the ideas she has mulled for years to the test.
�I�ve always asked, �How much better could this be?� � she said. �Now we�re challenging the bulge brackets, and we have a lot more control over our time and our research.�