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US managers want more transparency from analysts

US – Almost half of US portfolio managers want to direct more of their business to brokers that don’t have a conflict of interest between their research and investment banking operations, according to Connecticut-based consulting firm, Greenwich Associates.

The research finds that 84% of institutional portfolio managers would like equity analysts to say whether or not they are holding the stocks they rate, though 55% didn’t think that the analysts shouldn’t be barred from owning stocks that they cover.

Publication of the research comes at a time when the New York attorney general has charged Merrill Lynch in the US with biased research in order to attract investors. The attorney general has discovered that some members of Merrill Lynch’s internet research team were circulating emails in which they privately disparaged stocks they were recommending in public.

Bill Slocum at Greenwich says their research was not influenced by the Merrill Lynch scandal. “Our research was conducted at the turn of the year, before the New York attorney general began his probe. Our results are coincidental. The question of whether or not analysts should be talking openly about their stocks to other departments within the same company has been around for a while anyway. It’s just recently come to the fore.”

Elsewhere, the research finds that the typical institutional portfolio in the US has seen its assets fall by 26.5% from $18.1bn (€20.1bn) in 2000 to $13.3bn (€14.7bn) last year. Slocum says this is the result of declines in the stock markets. “Managers are now divesting their portfolios to protect against further falls,” he says.

Greenwich says that managers in the US are also trying to address the problem by:
•cutting the amount of commission on trading in listed stocks;
• increasing the amount of soft-dollar trading and commission recapture arrangements they use;
•conducting more and more dealing through electronic brokerage systems;
• getting more and more involved in programme or high volume trading, where the commission earning potential is greater;
•cutting back the amount of brokerage firms they use;
•benchmarking more and more their portfolios.

Greenwich’s research is based on interviews conducted between last November and this January with 294 US-based institutional fund managers and 324 US dealing-desk traders.

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