Goldman Sachs goes alternative on research

Date: Wednesday, June 25, 2008
Author: Simon Osborne, Asianinvestor.net

Goldman hits the information superhighway with the provision of third-party research services in Asia, but some local hedge fund managers might need a bit of persuasion to use the product. Goldman Sachs is launching its Hudson Street Services brand in Asia this week in a series of research conferences in Tokyo, Hong Kong and Singapore. Hudson Street is a distributor of third-party research that was founded in 2007 and supplies mostly to hedge funds.

Goldman buys minority investments in alternative research firms. It provides capital and distribution, for which Goldman receives a cut for distribution as well as the benefits of its stake. Hudson Street is coming to Asia to sell US-based research products to Asian investment managers, but says it also plans to bring an Asian research firm on to the platform soon. Suresh Suppiah will act as the liaison point in Asia, based in Hong Kong.

Some of the research firms currently distributed through the platform include Medley Global Advisors which provides macro/policy intelligence and analysis, and iSuppli, a provider of electronics supply chain research and advisory services. The individual services fluctuate in price from $35,000 to $400,000 per year.

How a hedge fund accounts for information depends on the agreement between the fund and the manager – some allow for research expenses to be billed to the fund rather than coming out of the management fee. As an alternative, managers might try to negotiate soft dollars to pay for third-party research.

Looking at the list of research services on offer, what does the Street say?

“It has been terrific for us. It's unconstrained research content, containing no pressure from a broker that may be influenced by IB initiatives” says Mark Kuzminskas from Boston Partners. “For the providers it is a low cost option because they don’t have the constraints of having to run a full service platform. If it wasn’t for the likes of Hudson Street these providers wouldn’t have a way of distributing research to firms like ourselves.”

But keep your champagne on ice, Goldman Sachs. You’ve still got some marketing and persuasion to do here in Asia. Some Asian hedge fund managers are very tough nuts to crack when it comes to parting with their hard-earned dollars for research (and definitely when it comes to forking out for champagne).

“If this stuff is so cutting edge what does it say about Goldman's regular research?” says a hedge fund manager which uses Goldman Sachs as its Asian prime broker. “To be honest even if the services were free I don't think I would find any of them worth it for what we do.”

Now, it is understandable that users can come over Luddite when new-fangled inventions pop up. AsianInvestor asked Goldman Sachs about these objections, and this is what Tom Conigliaro, a managing director in Goldman Sachs’ equities division and head of Hudson Street Services had to say:

If these services are so great, why use Goldman’s own research?

Conigliaro: These tools and research content available on Hudson Street Services are separate from but complementary to Goldman Sachs' fundamental research product. None of the research providers on the platform provide fundamental (ratings driven) research that could be comparable to Goldman Sachs' research. Goldman Sachs makes minority investments in the companies to participate in their growth.

Are these services really useful in Asia?

All the existing partners on Hudson Street Services have content/tools relevant to Asia. For example, iSuppli provides advisory services on the electronic value chain, targeting the top electronic companies in the world, many based in Asia. Lusight focuses exclusively on emerging markets, especially frontier markets. Medley Global Advisors provides analysis of monetary, fiscal and currency policies of key economies, including many in Asia. TrimTabs provides detailed real time coverage and analysis of US and international equity market liquidity, covering Asian markets including Japan, Hong Kong and China. Connotate and Investars are technology platform that are market agnostic. Asset 4, which provides financial and extra-financial information (such as that on a company's environmental policy, board independence), will begin covering the MSCI World index by year-end.