WEBVTT - Inside the Changing World of the Sell-Side Analyst 0:00:08.039 --> 0:00:11.280 Hello, and welcome to another edition of the Odd Lots Podcast. 0:00:11.320 --> 0:00:15.680 I'm Tracy Allaway and I'm Joe. Wasn't so, Joe? What 0:00:15.720 --> 0:00:20.840 are we talking about today? Analysts? Wait wait, wait before 0:00:20.920 --> 0:00:22.400 we get to that, can we just say this is 0:00:22.400 --> 0:00:25.840 not just another edition of the Outlaws podcast, and that 0:00:25.960 --> 0:00:28.680 this is a special edition of the Outlaws podcast. Why 0:00:28.720 --> 0:00:31.560 is it special because I am in the same room 0:00:31.600 --> 0:00:34.159 with you. I'm looking at your face as we're talking. 0:00:34.680 --> 0:00:38.919 Normally we're in other studios around the world, and so 0:00:38.960 --> 0:00:41.120 it's a very special moment where we happen to both 0:00:41.120 --> 0:00:43.040 be in the same city at the same time. So 0:00:43.159 --> 0:00:45.839 I just want to take a moment to appreciate how 0:00:46.120 --> 0:00:48.400 how nice this is. I like how you say we're 0:00:48.440 --> 0:00:50.680 in the same studios when in reality, I'm sitting on 0:00:50.720 --> 0:00:53.600 my living room floor. Right. I was trying. I didn't 0:00:53.600 --> 0:00:57.000 know if you wanted that information normally to get out there, 0:00:57.040 --> 0:00:59.560 so I use that as euphemism. But yes, normally I'm 0:00:59.560 --> 0:01:01.880 in a student you your in your your living room floor. 0:01:02.040 --> 0:01:04.560 But this time we're in the same studio about ten 0:01:04.600 --> 0:01:08.679 feet away. Right, we are reunited and it feels so good. 0:01:08.720 --> 0:01:12.440 I guess, okay, all right, But in all in all seriousness, 0:01:12.520 --> 0:01:15.400 let's get down to business. We are discussing a topic 0:01:15.440 --> 0:01:17.120 that I think is kind of close to both our 0:01:17.160 --> 0:01:22.119 hearts today, analysts and analyst research. Yes, I don't think 0:01:22.160 --> 0:01:25.640 it's intuitively obvious when someone says, oh, analyst research is 0:01:25.680 --> 0:01:27.720 close to your heart, Maybe that's like not the kind 0:01:27.720 --> 0:01:29.520 of thing that makes a lot of sense to people. 0:01:29.959 --> 0:01:33.040 But I think as people will see and the course 0:01:33.040 --> 0:01:37.560 of our discussion, for both of our careers, analyst research 0:01:37.600 --> 0:01:40.399 has played an important role. Absolutely so. I think a 0:01:40.440 --> 0:01:42.880 lot of people will have noticed by now that there 0:01:43.000 --> 0:01:46.600 is a significant segment of financial media that zeros in 0:01:46.720 --> 0:01:50.279 on the cell side research being produced, and that kind 0:01:50.320 --> 0:01:55.160 of gives people ideas for stories or sometimes the stories themselves. 0:01:55.280 --> 0:01:57.480 You write up an analyst note and it can be 0:01:57.520 --> 0:02:01.520 a big deal. And just so people understand and um, 0:02:01.600 --> 0:02:04.360 when we talk about analyst research in the cell side, 0:02:04.880 --> 0:02:07.760 for those who don't know what those terms mean, we're 0:02:07.800 --> 0:02:11.639 talking about what you've seen those stories like Goldman Sachs 0:02:11.760 --> 0:02:15.160 is bullish on Tesla and and and or Goldman Sacks 0:02:15.280 --> 0:02:19.639 upgrades Tesla to a buy or Morgan Stanley downgrades its 0:02:19.680 --> 0:02:23.480 forecast for the third quarter GDP or whatever it is, 0:02:23.480 --> 0:02:26.240 and you see those headlines, you see those stories, and 0:02:26.280 --> 0:02:29.080 that refers to the people at the big banks typically 0:02:29.120 --> 0:02:32.280 though not always, who write up reports on various things 0:02:32.280 --> 0:02:36.120 and markets in the economy that both you know, traders 0:02:36.120 --> 0:02:39.880 and investors and of course journalists we we like to 0:02:39.880 --> 0:02:42.280 pour through it. So what are we talking about this today? 0:02:42.320 --> 0:02:45.320 All right? So analysts and their research have been a 0:02:45.360 --> 0:02:47.120 big part of our lives. But at the same time, 0:02:47.120 --> 0:02:49.800 the industry has been going through its own i guess, 0:02:49.840 --> 0:02:53.840 existential crisis and also business crisis. In the same way 0:02:53.880 --> 0:02:57.600 that the media has struggled to monetize the stories that 0:02:57.639 --> 0:03:01.960 we're producing, there's a similar question facing the analyst community 0:03:02.080 --> 0:03:04.960 right now. There's also a big, big change coming in 0:03:05.000 --> 0:03:08.920 the form of new regulation called MiFID, which is basically 0:03:09.000 --> 0:03:13.240 going to force the people that produce research to charge 0:03:13.280 --> 0:03:16.239 for it in a way that hasn't been done historically. 0:03:16.280 --> 0:03:19.480 And this is key. Lots of people get research reports 0:03:19.520 --> 0:03:23.040 for free because they trade with the bank, uh and 0:03:23.080 --> 0:03:25.480 they give them commissions in that way, and then the 0:03:25.520 --> 0:03:27.680 research is kind of a free bonus for them. Well, 0:03:27.720 --> 0:03:30.880 I've never understood the business of analyst research, like how 0:03:31.160 --> 0:03:33.680 analysts get paid, How banks make money on it, and 0:03:33.720 --> 0:03:36.960 I certainly don't understand what the new regulations are all 0:03:37.000 --> 0:03:39.760 about or what they're intended to do. So I'm very 0:03:39.760 --> 0:03:42.160 excited about this episode. Who are we going to talk to? 0:03:42.320 --> 0:03:43.960 All right, so we actually have one of my all 0:03:44.000 --> 0:03:47.720 time favorite analysts. It's Steven Abraham's. He used to be 0:03:47.920 --> 0:03:52.160 head of mortgage, bond and securitization research over at Deutsche Bank, 0:03:52.480 --> 0:03:56.600 but he recently left to go found or co found 0:03:56.760 --> 0:04:00.240 mile Post Capital Management and he is now see EO 0:04:00.440 --> 0:04:03.080 over there as well. So should we bring them on? 0:04:03.160 --> 0:04:15.880 Let's do it. Steven, Welcome to the show. Hi, Tracy, 0:04:16.600 --> 0:04:20.000 Hey Joe, how are you so? Maybe just before we begin, 0:04:20.080 --> 0:04:22.159 do you want to give a sort of analyst job 0:04:22.240 --> 0:04:26.680 in a nutshell kind of description? Well, I think a 0:04:26.720 --> 0:04:32.440 good analyst actually is probably a lot like any good journalist. Really. 0:04:32.760 --> 0:04:38.120 You are always basically out there trying to chase the 0:04:38.160 --> 0:04:42.080 biggest possible story that you think might exist in your market. 0:04:42.839 --> 0:04:45.280 You want to get there first, You want to get 0:04:45.320 --> 0:04:49.000 there with the best information, and you want to deliver 0:04:49.120 --> 0:04:53.039 it with all the style you can muster. How you 0:04:53.120 --> 0:04:56.560 do that really depends upon what part of the world 0:04:56.560 --> 0:04:59.960 you're focusing. On. If you're an equity analyst, then you're 0:05:00.080 --> 0:05:04.760 trying to understand the latest about how your company's markets 0:05:04.760 --> 0:05:08.120 may be evolving or the strategies that you're rolling out. 0:05:08.960 --> 0:05:11.600 If you're in fixed income, which is where I've spent 0:05:11.680 --> 0:05:17.400 my career, then uh, you may be focused on the economy. 0:05:17.680 --> 0:05:19.839 You may be focused on what the FED is doing. 0:05:20.640 --> 0:05:26.040 You may be focused on specific twists in your own market. 0:05:26.080 --> 0:05:29.040 Mortgages have been mine, and you just want to get 0:05:29.080 --> 0:05:33.840 there first and get that information out to your audience. 0:05:34.040 --> 0:05:35.480 I have a feeling we're gonna be talking about the 0:05:35.480 --> 0:05:38.640 parallels of journalism and being an analyst a lot on 0:05:38.680 --> 0:05:41.719 this because just hearing you talk, I already have so 0:05:41.760 --> 0:05:43.800 many questions. But you know, one of the questions that 0:05:43.880 --> 0:05:46.680 comes up for a journalist is like, what is a 0:05:46.800 --> 0:05:50.640 job well done? And so I'm curious for you what 0:05:50.640 --> 0:05:53.360 what you during the course of your career have considered 0:05:53.400 --> 0:05:56.000 to be like a job well done? Is it having 0:05:57.040 --> 0:06:01.839 correct calls? Is it wanting people? Is that having people 0:06:01.960 --> 0:06:06.359 want to read your stuff first versus other analysts? Like 0:06:06.760 --> 0:06:08.840 when you look back and I say, okay, I was 0:06:08.880 --> 0:06:12.200 successful at X, what are the how do you benchmark 0:06:12.240 --> 0:06:17.200 yourself well I think it's parts of both what you mentioned. 0:06:18.000 --> 0:06:22.960 I think the audience that you're speaking to UH desperately 0:06:23.080 --> 0:06:27.359 wants UM to be the first to know what is 0:06:27.440 --> 0:06:31.680 changing in their marketplace, and sitting on a trading floor 0:06:31.800 --> 0:06:35.760 or sitting at one of the larger banks usually gives 0:06:35.800 --> 0:06:41.000 you access to tremendous information flow. That information flow can 0:06:41.080 --> 0:06:46.479 come through the traders, because especially at larger places, they're 0:06:46.520 --> 0:06:51.159 seeing the various types of institutions that are buying and 0:06:51.320 --> 0:06:55.680 selling UH. It can come through the salesforce, who can 0:06:56.360 --> 0:07:03.040 often share information about UH, the views of their clients, UH, 0:07:03.360 --> 0:07:05.599 the kinds of assets that they may or may not 0:07:05.800 --> 0:07:12.560 be enthusiastic about. And you can often find in the 0:07:12.600 --> 0:07:16.640 midst of these streams of information little tidbits that you 0:07:16.880 --> 0:07:20.800 suspect are not broadly known in the marketplace, and those 0:07:20.800 --> 0:07:23.960 are the pieces of information that end up moving the market, 0:07:24.080 --> 0:07:29.240 essentially changing the price of one or a sector of 0:07:29.320 --> 0:07:33.800 assets when all other parts of the market, for practical purposes, 0:07:33.840 --> 0:07:37.880 may be standing still. That's the kind of information that 0:07:38.120 --> 0:07:41.400 can make or break an investment portfolio. And that's the 0:07:41.480 --> 0:07:45.880 kind of information that any good member of the by 0:07:45.960 --> 0:07:50.320 side audience wants to hear. So if that's the game, 0:07:50.840 --> 0:07:53.560 you really want to keep your ears open for those 0:07:53.560 --> 0:07:57.560 tidbits of information that you think signal things that could 0:07:57.560 --> 0:08:01.680 move the market. Sometimes they're small, sometimes they can be huge, 0:08:02.160 --> 0:08:05.160 and when you find that, that's a good day, that's 0:08:05.160 --> 0:08:08.160 a job well done. So I've always been curious how 0:08:08.200 --> 0:08:14.720 are analysts perceived within south side banks, because externally, we 0:08:14.840 --> 0:08:17.240 in the financial media zero in on a couple like 0:08:17.480 --> 0:08:21.640 rock star analyst names like Peter Oppenheimer at Goldman or 0:08:21.720 --> 0:08:25.800 Marco Kolonovitch at JP Morgan. Do they have the same 0:08:25.960 --> 0:08:30.920 cashe internally or is analysts and analyst research viewed as 0:08:31.000 --> 0:08:35.120 basically a cost center for the bank? Well, um, I 0:08:35.120 --> 0:08:40.080 think most firms, most firms, at least the places that 0:08:40.160 --> 0:08:42.559 I've worked, and I think this is just broadly true. 0:08:43.520 --> 0:08:47.400 Recognize that that good research and a good analyst just 0:08:47.760 --> 0:08:53.360 separates you from your competitors. If you imagine a market 0:08:53.360 --> 0:09:01.559 where they're really were no good, aggressive, compelling analysts, then 0:09:01.640 --> 0:09:05.120 essentially you have a market where there is simply price 0:09:05.200 --> 0:09:09.640 execution that the bank could offer their clients if the 0:09:09.679 --> 0:09:14.920 analysts brings good information, or if the analyst is able 0:09:14.960 --> 0:09:18.160 to take lots of information and synthesize it in a 0:09:18.200 --> 0:09:22.600 way that allows the audience of investors to understand and 0:09:22.640 --> 0:09:28.079 react to it. That's extremely valuable, and it is a 0:09:28.240 --> 0:09:32.199 service that the bank can provide that many of of 0:09:32.240 --> 0:09:38.760 their clients in turn value and over time will direct 0:09:38.960 --> 0:09:43.640 progressively more of their business towards the providing bank. And 0:09:43.679 --> 0:09:47.640 I think in a well run institution, that's the way 0:09:47.800 --> 0:09:52.280 good research um helps the investor and helps the bank. 0:09:52.840 --> 0:09:56.920 So your last answer there really gets to a question 0:09:57.080 --> 0:09:59.040 that I think a lot of people have about the 0:09:59.080 --> 0:10:02.959 business model Becau has. Let's say you unearthed some great 0:10:03.120 --> 0:10:08.440 negative insight. I want to trade on that a why 0:10:08.520 --> 0:10:11.600 can't I just go trade with a competitor use the 0:10:11.640 --> 0:10:14.880 information that you've get that you've provided me. I have 0:10:14.920 --> 0:10:17.640 a big trade idea. Go trade with a competitor or 0:10:17.880 --> 0:10:20.200 maybe a place a little bit of a trade through 0:10:20.240 --> 0:10:23.240 your bank to sort of show that Okay, thanks for 0:10:23.280 --> 0:10:25.440 that information, but then trade do the bulk of my 0:10:25.520 --> 0:10:28.760 trading somewhere else. There seems to there doesn't seem to 0:10:28.760 --> 0:10:32.720 be a mechanism that naturally connects the bank that offered 0:10:32.760 --> 0:10:35.800 you the really compelling information and a reason to actually 0:10:36.200 --> 0:10:40.120 execute orders through that bank. Yeah, I agree. Um. That 0:10:40.200 --> 0:10:44.280 has always been a problem with with sell side research. 0:10:44.920 --> 0:10:49.840 There's always the issue of free riders. I have never 0:10:49.920 --> 0:10:55.600 seen a completely satisfactory solution for it. I think a 0:10:55.679 --> 0:11:01.400 well organized bank does have the ability to UH roughly speaking, 0:11:01.600 --> 0:11:04.920 track and understand the proportion of the trading business that 0:11:05.000 --> 0:11:08.840 the account is providing to the bank, and that is 0:11:09.720 --> 0:11:14.280 the best way of looking at the ability of the 0:11:14.320 --> 0:11:18.880 analysts to help the bank generate trading revenue and effectively 0:11:18.920 --> 0:11:24.200 pay for the service provided. But it's a imperfect mechanism, 0:11:24.320 --> 0:11:27.440 so it's always been a problem. UM. Talk to us though, 0:11:27.559 --> 0:11:30.800 how the industry has changed over the years, because there 0:11:30.920 --> 0:11:35.640 is a sense nowadays that analysts are facing a little 0:11:35.640 --> 0:11:38.680 bit of maybe crisis is a strong word, but that 0:11:38.760 --> 0:11:42.400 they're struggling with this monetization issue, and it feels like 0:11:42.440 --> 0:11:47.400 that concern has been growing. Has it actually changed well, Um, 0:11:47.720 --> 0:11:50.880 I think that on the equity side, I think it's 0:11:51.280 --> 0:11:55.040 the change is clearer and it seems like we're about 0:11:55.080 --> 0:11:58.920 to go into, you know, arguably a third chapter in 0:11:58.960 --> 0:12:02.680 the equity search model. I'd say the first chapter was 0:12:03.440 --> 0:12:08.440 pre Internet crisis, if you remember that one, UH and 0:12:08.559 --> 0:12:16.120 pre Internet crisis, equity analysts routinely had um special access 0:12:16.160 --> 0:12:20.959 to corporate management, and what they learned in the course 0:12:20.960 --> 0:12:25.559 of those conversations often could be shared with a limited 0:12:25.640 --> 0:12:29.839 range of clients, and it was clear to the bank, 0:12:29.880 --> 0:12:31.719 it was clear to the clients, it was clear to 0:12:31.760 --> 0:12:37.120 the analysts that that was a clubby form of information flow. 0:12:37.880 --> 0:12:43.560 After the crisis, I think regulation stopped that, which created 0:12:43.600 --> 0:12:51.080 frankly fairer markets, and the market is essentially operated in 0:12:51.280 --> 0:12:56.320 a post Internet crisis mode until recently with the introduction 0:12:56.520 --> 0:12:59.840 in the EU at least of the method regulations and 0:13:00.200 --> 0:13:04.560 method obviously is trying to put a very specific price 0:13:05.200 --> 0:13:09.120 on the provision of of research. Whether it will do 0:13:09.160 --> 0:13:12.480 that successfully is still to be determined at an't I 0:13:12.679 --> 0:13:19.040 contrast that though with fixed income research, I would say 0:13:19.080 --> 0:13:24.720 that in many respects fixed income research, since it is 0:13:24.880 --> 0:13:29.000 often focused more on macro issues than on the particulars 0:13:29.040 --> 0:13:32.880 of a management team or a specific balance sheet, Fixed 0:13:32.880 --> 0:13:36.360 income research, at least in terms of its method, the 0:13:36.400 --> 0:13:41.080 way that it interacts with uh internal and external clientele 0:13:42.080 --> 0:13:49.760 hasn't really changed as much over the years. UM. You know, 0:13:49.840 --> 0:13:56.600 obviously there's there's constant awareness of abiding by the evolving 0:13:56.679 --> 0:14:01.679 regulations that need to provide fair and accurate research, and 0:14:02.440 --> 0:14:06.160 there's always been an overriding I think premium attached to 0:14:06.200 --> 0:14:14.000 analysts that provide straight down the middle views of their markets. Um, 0:14:14.160 --> 0:14:18.280 that's not always obvious, but still I think the investing 0:14:18.320 --> 0:14:21.400 side has always been able to identify and appreciate those analysts, 0:14:22.200 --> 0:14:26.880 and and the fixed income and the more macro side 0:14:26.880 --> 0:14:32.320 of the research enterprise has had much less changed than 0:14:32.320 --> 0:14:35.240 the equity side. I think that that's still probably the case. 0:14:36.400 --> 0:14:38.760 I'm so glad we're having this conversation because now I'm 0:14:38.760 --> 0:14:41.600 remembering like millions of questions I've always had about the 0:14:41.600 --> 0:14:44.960 business that I'm so uh that I've always wanted to 0:14:45.000 --> 0:14:49.320 ask someone. So here's your last answer. Why is it 0:14:49.400 --> 0:14:56.560 that by side clients need analysts to understand the markets 0:14:56.600 --> 0:14:59.320 that they're us that they're trading in that they're ostensibly 0:14:59.760 --> 0:15:03.400 get paid quite a bit for to determine, you know, 0:15:03.440 --> 0:15:05.440 what the best stuff to buy and sell us. So, 0:15:05.560 --> 0:15:08.320 in the fixed income space, if someone is a fixed 0:15:08.320 --> 0:15:13.280 income portfolio manager, what is it that you offer them, 0:15:13.400 --> 0:15:16.560 or that fixed income analysts offers that it would be 0:15:17.000 --> 0:15:21.360 uneconomic for them to sort of understand themselves or put 0:15:21.360 --> 0:15:26.080 in the work themselves to figure out well. UM, I 0:15:26.120 --> 0:15:31.040 would say the simplest example, uh, really is the place 0:15:31.040 --> 0:15:35.240 where I started my career, and that is in the 0:15:35.320 --> 0:15:43.400 mortgage space. Analyzing the behavior of homeowners that influence sometimes significantly, 0:15:43.480 --> 0:15:49.720 the value of of those securities. UM. It's a market 0:15:49.760 --> 0:15:54.200 that's particular to the United States, but all mortgage securities 0:15:54.240 --> 0:16:00.680 in the United States give the borrower the right to move, refinance, 0:16:00.880 --> 0:16:04.880 or otherwise pay their loan back early in most cases 0:16:04.880 --> 0:16:10.720 without any kind of penalty. So that creates uncertainty in 0:16:10.920 --> 0:16:14.560 the stream of cash flows that you would get from 0:16:14.600 --> 0:16:19.720 holding that security, and depending upon the nature of the security, 0:16:19.720 --> 0:16:24.880 how it structured, those can have either minor or major 0:16:24.960 --> 0:16:30.520 influence on security value. That really is an exercise in 0:16:31.680 --> 0:16:38.440 gathering tremendous amounts of data and statistically modeling that data. 0:16:38.720 --> 0:16:42.360 So it is far more efficient for that activity to 0:16:43.080 --> 0:16:46.880 occur in a centralized place and for the results of 0:16:46.880 --> 0:16:51.040 that activity to be than delivered to clients, as opposed 0:16:51.040 --> 0:16:56.080 to having every single client separately aggregate the data and 0:16:56.120 --> 0:16:59.160 then do the statistical modeling on their own. So that's 0:16:59.200 --> 0:17:04.159 probably the easiest case. I would also say that it's 0:17:04.280 --> 0:17:07.840 far easier for an analyst even if an analyst is 0:17:07.880 --> 0:17:12.400 just trying to aggregate broad information about the types of 0:17:12.400 --> 0:17:16.080 buyers and sellers in the market. Uh, it's far easier 0:17:16.119 --> 0:17:18.639 for an analyst sitting on a trading floor to aggregate 0:17:18.680 --> 0:17:23.240 that information than it usually would be from most buy 0:17:23.359 --> 0:17:27.920 side analysts. The sell side analysts, in many cases can 0:17:28.000 --> 0:17:32.119 literally walk up and down a couple of aisles, have 0:17:32.600 --> 0:17:37.800 a handful of conversations with sales representatives or traders that 0:17:37.840 --> 0:17:42.520 are interacting with dozens of various accounts over the course 0:17:42.800 --> 0:17:46.600 of just you know, that particular trading day, and get 0:17:46.600 --> 0:17:48.960 a very clear read on what's happening. It would be 0:17:49.480 --> 0:17:52.600 a lot more work for a sell side analyst to 0:17:52.920 --> 0:17:56.880 collect that kind of information over the phone. Now that's 0:17:56.920 --> 0:18:01.240 not always true. If you're at an extremely large asset 0:18:01.320 --> 0:18:07.520 manager UM, they would often have information flow analysts. The 0:18:07.600 --> 0:18:11.680 ability to aggregate data, the ability to analyze that data 0:18:12.359 --> 0:18:18.000 equal to, if not better than, some of the cell 0:18:18.119 --> 0:18:23.200 side shops. But shops that large are few and far between. 0:18:23.840 --> 0:18:26.800 So the provision of that kind of information from the 0:18:26.840 --> 0:18:29.720 cell side, if you want to think of it this way, 0:18:29.840 --> 0:18:33.520 is really kind of a democratizing influence. It captures that 0:18:33.600 --> 0:18:36.600 information in an efficient way, and then it spins it 0:18:36.640 --> 0:18:41.600 out into the marketplace in many cases for investors that 0:18:41.600 --> 0:18:45.399 would be too small and too focused on other things 0:18:45.920 --> 0:18:58.399 on their own to to to do it themselves. I 0:18:58.440 --> 0:19:01.359 want to go back to the media a parallel for 0:19:01.400 --> 0:19:05.560 a little bit. Yeah, more naval gazing. Um well, I 0:19:05.560 --> 0:19:08.600 don't think it's a secret that you know. Traditional journalism 0:19:08.680 --> 0:19:11.960 or media has struggled over the past few years, especially 0:19:12.040 --> 0:19:16.800 in light of the growing influence of the Internet, which 0:19:16.920 --> 0:19:21.600 has made news sort of more commoditized. So a scoop 0:19:21.640 --> 0:19:24.600 only exists for what five or ten minutes before someone 0:19:24.600 --> 0:19:28.240 else is disseminating it to the world arguably one second. 0:19:28.960 --> 0:19:32.280 And it also means that you just have more competitors 0:19:32.320 --> 0:19:35.400 in a variety of forms. Um So, I'm curious when 0:19:35.400 --> 0:19:39.200 it comes to research, did you observe the same things 0:19:39.640 --> 0:19:42.399 and how did you feel? For instance, if you wrote 0:19:42.520 --> 0:19:45.600 a really good note and someone like myself or Joe 0:19:45.640 --> 0:19:50.159 would immediately write it up at say FT Alphabel, my 0:19:50.200 --> 0:19:55.399 old employer or Joe's old employer business insider, well, I 0:19:55.400 --> 0:19:59.760 would say, uh. In most cases, a good analyst loves 0:20:00.359 --> 0:20:05.160 the bullhorn of the media. You love to get magnified 0:20:05.200 --> 0:20:10.439 that way. In many, many cases, the first recipients of 0:20:10.520 --> 0:20:17.080 your work are the institutions that are the clients of 0:20:17.160 --> 0:20:20.520 the firm, and they're typically going to get that information 0:20:21.240 --> 0:20:26.199 on direct distribution. Uh, there's nothing better than having that 0:20:26.240 --> 0:20:29.760 story picked up. In most cases, it won't be picked 0:20:29.840 --> 0:20:32.280 up immediately, but let's just say it's picked up with 0:20:32.359 --> 0:20:38.080 some lag and then magnified in the broader press. It 0:20:38.200 --> 0:20:42.400 kind of sends a couple of messages to the clients 0:20:42.400 --> 0:20:45.800 of the firm. It says you really should pay attention 0:20:46.040 --> 0:20:51.159 when the information arrives because it's it's valuable, it's of 0:20:51.240 --> 0:20:54.560 interest to a broad audience, it has the potential to 0:20:54.640 --> 0:20:58.840 move the market, and it gives you an opportunity to 0:20:59.119 --> 0:21:03.800 act on it. And it sends a broader message to 0:21:04.520 --> 0:21:08.040 entities that may not be dealing with your firm that 0:21:08.200 --> 0:21:12.600 there there are there's a good information flow, a valuable 0:21:12.600 --> 0:21:16.440 information flow coming out of out of UM the Bank. 0:21:16.880 --> 0:21:20.119 So I think that ends up being in positive in 0:21:20.200 --> 0:21:23.119 most cases. In fact, I can't think of a case 0:21:23.240 --> 0:21:27.920 where a media follow through wasn't good news on the 0:21:27.960 --> 0:21:31.440 things that I was working on or that my team 0:21:31.480 --> 0:21:33.680 was working on. All right, but there are some perverse 0:21:33.800 --> 0:21:38.040 things that can happen in this cycle, and so media 0:21:38.160 --> 0:21:45.119 often gets criticized for being hyperbolic or being you know, uh, sensationalist. 0:21:45.640 --> 0:21:48.360 And I'm not gonna name any names, but we all 0:21:48.400 --> 0:21:52.160 know that there are some popular sell side analysts who 0:21:52.600 --> 0:21:57.000 have been wrong on things for many years, predicting recessions, 0:21:57.080 --> 0:22:00.920 predicting crashes, and they're extremely popular, and they're really popular 0:22:00.960 --> 0:22:03.680 in the press because we like to write up bold calls, 0:22:04.240 --> 0:22:08.320 but they are completely everything that nothing they say ever 0:22:08.400 --> 0:22:13.480 comes to pass. And I'm curious whether the cycle but no, 0:22:13.760 --> 0:22:16.480 I no needs to name names, but whether this media 0:22:16.520 --> 0:22:20.280 cycle can encourage people to say provocative things that will 0:22:20.320 --> 0:22:23.080 get picked up in the press but that aren't necessarily 0:22:23.760 --> 0:22:27.520 correct or grounded in good data. I think it does. 0:22:28.520 --> 0:22:32.720 I think it depends upon the market sector and who 0:22:32.760 --> 0:22:38.119 the analysts believes the audience is. If it is a 0:22:38.280 --> 0:22:44.080 retail audience, then you have to find a way of 0:22:44.800 --> 0:22:51.000 penetrating the same clutter as any other provider of information 0:22:51.240 --> 0:22:53.760 to that audience. And we all know that there is 0:22:54.320 --> 0:22:57.679 just a tremendous number of channels that are fighting for 0:22:57.720 --> 0:23:02.840 the attention of somebody sitting in front of a TV, 0:23:03.119 --> 0:23:08.639 in front of a broker's audience or somebody who is 0:23:09.280 --> 0:23:14.000 walking past the front of a store. If your audience 0:23:14.240 --> 0:23:19.280 is an institutional audience, it's not clear to me that 0:23:20.160 --> 0:23:26.240 the same approach works because the institutional audience if the institution, 0:23:26.359 --> 0:23:30.360 the institution ultimately needs to produce a return that will 0:23:30.440 --> 0:23:37.520 justify its fees. Generating that that return is really hard work. 0:23:38.200 --> 0:23:42.080 That's what all the research shows. I think in many 0:23:42.080 --> 0:23:44.879 ways that's the story of asset flows of the last 0:23:44.920 --> 0:23:50.719 few years, that there is steady pressure on asset management fees. 0:23:51.280 --> 0:23:59.919 So you need to find sources of information that are thoughtful, reliable, actionable, 0:24:00.840 --> 0:24:04.399 And if you're an analyst and you can provide that 0:24:04.520 --> 0:24:08.600 kind of information, then your audience is gonna look for 0:24:08.640 --> 0:24:14.560 you rather than necessarily uh considering you as just part 0:24:14.560 --> 0:24:18.760 of the general clutter that comes over the wires. Um. 0:24:18.800 --> 0:24:21.919 So we mentioned mythid a couple of times before, but 0:24:21.960 --> 0:24:24.520 this is the big European regulation coming in that's gonna 0:24:24.800 --> 0:24:29.680 unbundle research from training commissions. Essentially, how do you think 0:24:30.000 --> 0:24:33.920 that's going to change the world of analyst research? We 0:24:34.160 --> 0:24:37.000 can before you answer, can you also explain what the 0:24:37.119 --> 0:24:40.720 reason why? Before? Like what was the situation? Because I 0:24:40.760 --> 0:24:43.720 don't even understand this still, so what what was the 0:24:43.760 --> 0:24:46.640 situation that prompted the EU to think that this regulation 0:24:46.720 --> 0:24:48.920 was necessary? And then also and then of course, how 0:24:48.960 --> 0:24:51.760 that's going to change your world. I can't say that 0:24:51.800 --> 0:24:57.880 I know exactly what was of the EU regulator UM, 0:24:57.880 --> 0:25:01.440 but I will happily read that crystal ball all so 0:25:01.840 --> 0:25:05.040 I would assume that what the regulator is trying to 0:25:05.080 --> 0:25:11.080 do here is unbundle trade execution from the provision of 0:25:11.119 --> 0:25:16.400 other services by a sell side bank. And I suppose 0:25:16.480 --> 0:25:20.040 at some level you could say that UM that will 0:25:20.119 --> 0:25:23.600 create transparency in the marketplace, because then you will be 0:25:23.640 --> 0:25:28.919 able to compare execution as a separate service compared to 0:25:30.240 --> 0:25:35.959 UM research itself. I don't know if we necessarily are 0:25:35.960 --> 0:25:39.600 going to see that result. In the US. We do 0:25:39.720 --> 0:25:43.520 not have at this point regulators taking the same view, 0:25:43.880 --> 0:25:46.080 So there is no effort so far in the US 0:25:46.119 --> 0:25:51.119 to try to unbundle that. And I do have some 0:25:51.200 --> 0:25:54.720 questions about whether that will produce the amount of change 0:25:54.880 --> 0:25:59.399 that the regulators anticipate. One thing that seems relatively clear 0:25:59.480 --> 0:26:03.400 to me is that it's more likely to have an 0:26:03.440 --> 0:26:07.320 impact on the BYE side then it will on the 0:26:07.359 --> 0:26:10.760 cell side, and The reason I suspect it could have 0:26:10.800 --> 0:26:14.160 an impact on the buy side is that it will 0:26:14.200 --> 0:26:19.680 tend to favor institutions large enough to bear the separate 0:26:19.720 --> 0:26:25.120 cost of research. That provision of research, as I indicated earlier, 0:26:25.800 --> 0:26:32.120 in many ways, is a really valuable democratizing influence. Many 0:26:32.160 --> 0:26:35.359 small institutions that may not do a tremendous amount of 0:26:35.400 --> 0:26:39.240 trading with a sell side bank still have access to 0:26:39.280 --> 0:26:45.440 the research flow, and once the sell side starts requiring 0:26:45.480 --> 0:26:51.840 those institutions to pay UH for that provision of service, 0:26:52.560 --> 0:26:55.960 it might become prohibitive. It's certainly I can tell you 0:26:56.760 --> 0:26:59.320 that as somebody who is in the middle of of 0:26:59.560 --> 0:27:03.560 building an asset manager now, you always keep your eye 0:27:03.560 --> 0:27:08.760 on costs, and you're sensitive to the competition over fees 0:27:08.880 --> 0:27:12.080 that exists in the marketplace, and so if you have 0:27:12.240 --> 0:27:16.560 to pay additional fees to buy research, it's something that 0:27:16.600 --> 0:27:20.320 you're going to do very very carefully. So my assumption 0:27:20.440 --> 0:27:23.320 is that at least for institutions that are dealing primarily 0:27:24.240 --> 0:27:26.840 in the EU or that fall under the EU jurisdiction, 0:27:27.160 --> 0:27:29.919 the rules are going to tend to favor concentration of 0:27:29.960 --> 0:27:35.040 asset management UM. In the US, those rules don't really apply, 0:27:35.440 --> 0:27:38.399 and so I think research in general is still going 0:27:38.480 --> 0:27:41.640 to be broadly available to a wide set of investors 0:27:42.200 --> 0:27:46.679 under the same protocols that have existed in the past. 0:27:47.480 --> 0:27:50.320 And so for the time being, provision of research and 0:27:50.400 --> 0:27:54.520 the model in US markets I think is not going 0:27:54.560 --> 0:27:59.800 to change substantially. Yeah, this gets to another sort of 0:28:00.040 --> 0:28:03.359 business model, parallel with media, which is that, you know, 0:28:03.400 --> 0:28:05.679 it's great to talk about we're going to restrict the 0:28:05.680 --> 0:28:08.000