The Money Management Boom

January 7th, 2009 § 1 Comment

As the Madoff scandal continues to unwind, the best reading for background on the situation continues to be Harry Markopolos’ letter to the SEC in 2005 (pdf, html) entitled “The World’s Largest Hedge Fund is a Fraud”. Not only is his analysis of the Madoff situation spot on, his analysis of the funds and funds of funds that invested in him is also very true: « Read the rest of this entry »

Investment Research after the storm

September 24th, 2008 § Leave a Comment

The last two weeks have kept most in the finance community glued to the headlines trying to figure out which earthquake will hit next. Mainstream media analysis has been focused on global economic issues and with numbers like $700B being thrown around, the $5.7B investment research industry, which has felt a substantial impact from the debt crisis and the Wall Street shakeup, has been largely overlooked. Nearly 3,000 equity research professionals have already been directly impacted. « Read the rest of this entry »

Investment Research: Continued Shift

September 10th, 2008 § 1 Comment

Ongoing market turmoil and the intensifying financial crunch have accelerated ongoing shift within the investment research industry. This morning Credit Suisse and the Gerson Lehrman Group announced a strategic partnership that will 1) give Credit Suisse analysts access to GLG consultants; 2) give GLG clients access to Credit Suisse analysts; 3) give GLG access to Credit Suisse distribution channels.

« Read the rest of this entry »

LinkedIn quietly launches Research Network and DirectAds…let the monetization begin.

June 30th, 2008 § 8 Comments

LinkedIn DirectAds
LinkedIn has quietly launched a beta version of a dynamic CPM text advertising platform called LinkedIn DirectAds. No formal announcement of the launch was made on the LinkedIn blog or elsewhere. According to the DIrectAds FAQ, advertisers will be able to dynamically target ads by age, gender, geography, educational institution, industry, and seniority. Minimum order size for an advertisement is $25, with the minimum number of impressions dependant on the targeting audience chosen by the advertiser. The rate that you pay for a CPM (1000 impressions) changes as you add or remove targeting options from your ad. Apparently the product will give click-through rates to advertisers, but billing will be based on CPM. In a unique twist, ads will also include the advertisers name and a link to their LinkedIn profile in hopes of “increasing transparency and visibility into the advertiser.” Much like the Facebook SocialAds platform, advertisers must have a profile on the network to launch an ad, although LinkedIn says they are limiting advertisers by completeness of profile, number of connections, date of profile creation and a number of other factors. I was unable to access the platform through my profile.

The DirectAds platform will bring LinkedIn closer to Facebook’s Social Ads technology, with these two leaving Bebo, MySpace, Plaxo, Friendster and the rest of the social networking world behind for now. I hope to be able to try the LinkedIn platform soon and give a head-to-head comparison. LinkedIn will continue to extract a premium on their advertising, as it seems they will be setting the price per CPM internally. A true market (e.g. Overture/pre-Panama Yahoo) or partial market (e.g. Google quality score) influence on price would likely result in prices lower than they would like, and they are clearly avoiding a CPC model for a reason since they are measuring CTR anyways. I think this slow transfer is very smart on their end especially considering their pre-IPO status, but as an advertiser I wish they would switch to a free market faster. Their ad margins will likely be lower than what they were getting with their rate card (although perhaps not), but the volume of advertisements will definitely spike upwards as you no longer have to go through a traditional advertising salesperson process to launch a targeted ad on their network.

LinkedIn Research Network
Additionally, on Thursday of last week LinkedIn quietly launched the LinkedIn Research Network, a product the company first mentioned back in February. No formal announcement of the actual launch was made on the LinkedIn blog or anywhere else, but the Research Network product page is live and linked to from the Premium Product footer, along with job, corporate, and upgrade links. Also linked is a 2 page product summary PDF. The product page outlines what is essentially a premium version of InMail (pdf). A Research Network subscriber can send send 20 InMails at once, and no monthly or daily limits are mentioned. Previously, LinkedIn BusinessPlus subscribers had the most InMail access and were limited to 10 InMails per month, so this is a dramatic increase in potential InMail volume. In the past advertisers could send targeted InMail blasts through LinkedIn’s advertising platform at $1 – $5 per recipient.

The LinkedIn Research Network is an attempt to move into the expert network industry and will be sold primarily to hedge, private equity and venture funds. According to a recent Integrity Research Associates report, there are roughly 25 expert networks in existence today. Aside from my company KnowledgeBid, every other expert network service operates on a subscription model. LinkedIn is likely gunning for the fat subscription fees that players like the Gerson Lehrman Group are pulling from investors (+$50k for access to one industry vertical of experts for 6 months), but the product they have launched is far more like the resume search/direct email services offered by Monster, HotJobs, CareerBuilder, Dice, etc. than an expert network. Perhaps down the road LinkedIn will try to facilitate the actual expert matching, but this iteration of the product just enables subscribers to send a large volume of cold emails to potential consultants. Additionally, the product page makes no mention of facilitating consultant payment and the only compliance functionality mentioned is a “research history”. Legal compliance is arguably the largest issue faced by expert networks today, and something that expert network users have come to expert from service providers. It’s possible that LinkedIn is intentionally not involving themselves with payment of experts in an attempt to remove themselves from the chain of liability if their service were to be used to facilitate insider trading or the like.

Congrats to LinkedIn on the product launches. I’m glad to see them competing with Facebook on the advertising technology side of things (let’s see an API guys!) and will certainly be keeping tabs on these products as they mature.

Import Genius + the value of information

June 17th, 2008 § Leave a Comment

ImportGenius is an innovating new company organizing the extremely valuable and historically unorganized world of import records. One of the first hedge fund managers I spoke to when researching KnowledgeBid mentioned that he liked to talk to shipping container brokers about utilization rates and import/export trends. I’m sure ImportGenius will have no problem finding customers in the investment community. TechCrunch coverage here (yes, Mac fanboys will like it too). Yet another company taking a unique approach to accessing information value. Good luck!

Investment Research + Massive Industry Shift

April 18th, 2008 § 3 Comments

I had the opportunity to present KnowledgeBid at the Investorside Alternative Research conference in New York last week (conference agenda), attended by an interesting mix of independent alternative investment research providers and buy-side folks. The investment research industry has undergone massive change in the last 10 years, much of which is a result of the information technology explosion, Regulation FD, and unbundled commissions. The dominant groups at the conference last week primarily fell into three categories: 1) expert networks, 2) data mining, and 3) research management. Very few, if any, new players are producing traditional research reports with buy/sell recommendations or general industry analysis. Even fewer are associated with particular trading desks, something that never would have been seen 10 years ago. The recent explosion of the alternative research space has in large part been at the expense of traditional sell side research.

Alternative Investment Research Market Size

The sell side and other large financial service players are now actively partnering with, investing, and acquiring alternative research operations. There has been an explosion of activity in the space in the last six months, part of a larger trend that has been emerging since Reg FD was passed eight years ago. I’ve aggregated major announcements and milestones below (let me know if I missed anything interesting).

Integrity Research: The Future of the Investment Research Industry

January 7th, 2008 § Leave a Comment

The folks at Integrity Research Associates recently published an interesting forecast for the investment research industry. Integrity provides syndicated research and consulting services to the investment community. In short, the Integrity is forecasting a continued decline in “traditional” investment research consumption from investment banks and research analysts, coupled with a continued increase in demand for alternative research services, like expert networks. Integrity cites Regulation FD, soft dollar codification, and continuing technological innovation as the major drivers in the revolution. These trends are in large part what inspired me to start building KnowledgeBid over year ago. The full report can be viewed here.

Changing Client Demand
A decade ago, buy-side investors relied on detailed fundamental company analysis produced by sell-side investment banks and brokerage firms. However, in the past few years, Regulation Fair Disclosure and Sarbanes Oxley have effectively reduced the value of investment bank research as sell-side analysts have less and less access to company management. The reduction of this confidential information in sell-side research has prompted many buy-side investors to bring a great deal of their analytical needs in-house. In turn, this has changed the type of research that buy-side investors have found most valuable.

Today, most institutional investors value access to experts, company management, various sources of proprietary data including channel checks and custom market research, profitable trading ideas, and new and innovative analytical techniques. In addition, many buy-side investors (particularly hedge funds) value information that is not widely distributed to other investors.

This change in buy-side research tastes has had a negative impact on traditional fundamental company research – including that of most sell-side firms and many alternative (independent) research providers. At the same time, it has stimulated the growth of new types of research providers, including expert networks such as Gerson Lehrman, channel checking firms such as Off the Record Research and web-oriented research providers such as Connotate, Kapow and First Rain. It is the new, innovative types of research which are growing the fastest, increasing the demand for alternative research overall.

The Integrity Forecast
These developments lead us to conclude that the research industry will experience a significant amount of “barbelling” in the coming years as bulge bracket investment banks lose some share of the research market, second and third tier sell-side firms suffer deep losses of research revenue, and a number of alternative research providers experience increased demand for their services.

Our forecast indicates that sell-side research revenues will fall close to 18% from $4.9 billion in 2006 to $4.0 billion in 2011. This decline is consistent with a survey done this past summer by financial services consulting firm Greenwich Associates, which revealed that almost 20% of the buy-side analysts expect their firms to either “reduce” or “significantly reduce” their use of sell-side research in the coming year.

Integrity expects that alternative research providers will gain at the expense of the sell-side, growing from $1.81 billion in 2006 to $2.47 billion by 2011, thereby increasing their share of the market from a 14.5% in 2006 to 19.8% in 2011. However, we do not expect all boats to rise with this tide. The most innovative research providers should experience the best growth, while traditional fundamental research providers could actually decline over this period. This forecast is consistent with the recent Greenwich Associates survey which showed that 39% of buy-side analysts expect their firms to increase their use of independent or alternative research in the next 12 months.

Finally, the team at Integrity Research anticipates that buy-side institutions will increase their spending on their internal research capabilities by 28.8% over the next few years from $5.8 billion in 2006 to $7.4 billion in 2011 as they continue to rely less and less on sell-side research and they rely more on their own research capabilities.

My picks: The best content on the web

July 19th, 2007 § 5 Comments

My buddy Will recently asked me what feeds I subscribe too, so I thought I would post what I pulled together for him here in case anyone else is looking for the good stuff. I subscribe to tons more feeds, but these are the ones I find myself consistently reading. I’ve found myself helping people set up NetVibes accounts recently, and this is generally what I put together, with each header being a separate tab within the same account. I’ve linked to the sites when possible and included the feed addresses below them. If you want to subscribe to one, copy the feed address and paste it into your aggregator (“Add content” >> “Add feed” in NetVibes). I’ve included feeds from my sites because I read that stuff too.

Tech/VC News
Venture Beat

http://venturebeat.com/?feed=rss2

Barron’s Tech Trader Daily
http://blogs.barrons.com/techtraderdaily/feed/
TechCrunch

http://feeds.feedburner.com/Techcrunch

ValleyWag

http://www.valleywag.com/index.xml

The Alarm Clock

http://www.thealarmclock.com/mt/atom.xml

Digg.com: Technology

http://www.digg.com/rss/containertechnology.xml

Analyst’s Edge: Venture Capital News

http://feeds.feedburner.com/AnalystsEdge-VentureCapitalFirmNews

Entrepreneurs
Marc Andressen: Ning

http://blog.pmarca.com/atom.xml

Roger Ehrenberg: Monitor110

http://www.informationarbitrage.com/atom.xml

Keith Schacht: JobCoin/Freshwaterventure

http://www.chicagobeta.com/feed/

Noah Kagan: Mint.com

http://feeds.feedburner.com/okdork/tZRC

Steve Newcomb: Powerset

http://feeds.feedburner.com/SteveNewcombBlog

VC Blogs
Jeremy Liew: Lightspeed Venture Partners

http://feeds.feedburner.com/lightspeedblog

Ask the VC (Brad Feld & Jason Mendelson: Mobius Venture Capital/Foundry Group)

http://feeds.feedburner.com/askthevc

Venture Hacks

http://feeds.venturehacks.com/venturehacks

Econ
The Big Picture: Barry Rithholtz

http://bigpicture.typepad.com/comments/index.rdf

Freakonomics Blog: Levitt & Dubner

http://www.freakonomics.com/blog/feed/

Private Equity/M&A
NYTimes: Dealbook

http://dealbook.blogs.nytimes.com/?feed=rss2

Seeking Alpha: M&A

http://usmarket.seekingalpha.com/by/type/mergers-acquisitions/feed

Analyst’s Edge: Private Equity News

http://feeds.feedburner.com/AnalystsEdge-PrivateEquityFirmNews

Hedge Funds/Public Equities
Infectious Greed: Paul Kedrosky

http://paul.kedrosky.com/index.rdf

Wall Street Folly

http://wallstfolly.typepad.com/wallstfolly/atom.xml

Controlled Greed: John Bethel

http://www.controlledgreed.com/atom.xml

Analyst’s Edge: Hedge Fund News

http://feeds.feedburner.com/AnalystsEdge-HedgeFundNews


Traditional News
WSJ

http://feeds.wsjonline.com/wsj/xml/rss/3_7011.xml

Economist
http://www.economist.com/rss/printedition/economist_printedition.xml
NYTimes
http://www.nytimes.com/services/xml/rss/nyt/HomePage.xml

Legal
WSJ: Law Blog

http://blogs.wsj.com/law/feed/

Above The Law

http://www.abovethelaw.com/index.xml


Sports
Townie News

http://feeds.feedburner.com/fitzy

Boston.com Red Sox (no direct link because of their stupid registration crap)

http://syndication.boston.com/sports/baseball/redsox/red_sox_rss/?mode=rss_10

Boston.com Patriots (no direct link because of their stupid registration crap)

http://syndication.boston.com/sports/football/patriots/patriots_rss?mode=rss_10

ESPN

http://sports.espn.go.com/espn/rss/news

Enjoy! Also, let me know if you think I missed anything…

Islamic Finance

June 11th, 2007 § Leave a Comment

Very interesting Reuters article on Islamic-friendly hedge funds I found through the Albourne Village weekly newsletter. In short, Islamic law bans gambling and generating interest on loans. This prevents short selling and debt. The article glosses over the issues investors face in trying to cater to this market, but in general it sounds like a very tough row to hoe.

Reuters reports that demand for hedge funds and for Islamic finance is booming, which makes a hedge fund that complies with Islamic law the holy grail for fund managers who want to tap huge liquidity in the Gulf. But most Islamic finance industry players say the two sides are incompatible and that common hedge fund strategies break Islamic law.

Others say that Islamic finance, in order to prosper, needs to develop tools to enable investors to hedge against risk, but that does not necessarily mean hedge funds. Standard Chartered does not offer Islamic hedge funds but is one of a number of lenders offering Islamic hedging products in a bid to meet growing demand from the world’s 1.2 billion Muslims for financial services that comply with their beliefs. Many common hedging practices are seen as speculative bets on currency and stock movements. Hedge fund strategies such as short selling are considered haram, or forbidden, by Islamic law. Lending on interest, the trading of debt and gambling are all haram. Practices deemed acceptable by Islamic law, known as sharia, are halal.

Albourne Village

June 7th, 2007 § Leave a Comment

Albourne Village, a site run by hedge fund advisor Albourne Partners, is a pseudo social network for hedge and private equity fund managers. They say the site has 47,544 users and has been around for ~7 years. From the looks of the site, they haven’t changed it since it was first built. It’s truly bizarre. Based on a “village” layout, different virtual buildings have different functions:

Like most villages, Albourne has a helpful map for visitors to use to navigate the winding streets and alleyways. With the aid of this map visitors can virtually walk along Albourne’s picturesque streets and explore the different style quarters. For those in a hurry or who haven’t found their bearings yet, the map provides direct routes to the principal locations of the Village. Many visitors tend to make a bee-line for the “old market square”, notable for its historic Town Hall and its impressive Library, before popping into the Bridge Inn for a quick pint and a friendly gossip with the local residents.

Users earn “apples” for submitting stories and posting on the message board – every user gets 500 when they sign up. There are currently 25,417,426 Apples in circulation. It is so difficult to navigate around the site that it is almost not worth investigating, but the service does product a very high quality weekly email newsletter aggregating news stories submitted by users. The message board also seems to get a lot of traffic, but it is almost impossible to read. The value of nearly 50,000 investment professional membership is huge, and the fact that the site gets any traffic at all with the current interface shows that users are getting real value from the system. The thought of hedge fund managers earning virtual apples they can cash in at the village pub is hilarious though. Albourne: if you want a site makeover, let me know. I know a guy.

Fine Violins Fund looking for $50m

May 25th, 2007 § Leave a Comment

From the FT:
A hedge fund investing in old violins has been pledged $11m (£5.5m) in the latest sign of investor willingness to put money into offbeat assets that were previously the exclusive domain of collectors and enthusiasts. Florian Leonhard, a London-based violin dealer and restorer, is aiming to start investing the Fine Violins Fund once it has raised $50m, with a target of returning 8 per cent to 12 per cent a year. The fund is perhaps the strangest in a series of new asset classes being created by investors trying to avoid stocks and bonds. Hedge funds have been set up specialising in wine, art, shipping and even football players, demonstrating the appeal of assets that historically have not been correlated with financial markets.

Wow. That guy better get some good insurance. Joshua Bell’s violin is nearly 70 years older than the United States and is worth $3.5m. Lots of questions come to mind:

  1. How many uber expensive violins are out there?
  2. If this is going to work, why stick with violins?
  3. Is this guy is going to buy violins and just lock them up? Or let artists use them and get lots of insurance?
  4. What impact will this have on the violin market? The market may be small enough where supply is noticeably cut and prices inflate…also very doubtful the actors are rational…
  5. How liquid is the market? If I remember correctly, Bell’s violin has been owned by less than 10 people.
  6. At what point is something just a crazy idea and not a hedge fund?

If you had $1,800 for every terabyte…

May 10th, 2007 § Leave a Comment

If you had $1,800 for every terabyte of data in existence, you would have roughly 1.4 trillion dollars, which is the approximate total amount of hedge fund capital. If you had $1,800 for every terabyte organized by Google, you could buy a nice apartment in San Francisco.

Hedge fund dollars
$1,400,000,000,000
Terabytes of data in existence
750,000,000 (and this – growth rate)

Terabytes of data organized by Google
500
Terabytes of storage capacity on the GLOW System
200

Where Am I?

You are currently browsing the hedge funds category at robwebb2k.

Follow

Get every new post delivered to your Inbox.