In Uncertain Environment, Merrill Bolsters Alternative Research
As some investors pare research providers, Open Minds service expands
March 30, 2009
As institutional investors increasingly demand a broader array of specialized research, Merrill Lynch's Open Minds service is expanding its roster of research providers to accommodate them.
The one-year-old Merrill Lynch unit is designed to round out the firm's buy-side research offerings with access to alternative content from third parties. "Our sole purpose is to find complementary research products that will help in building the full mosaic," says Michael Bird, managing director in global commission management at Merrill and head of the platform.
After launching with seven research partners, Open Minds has added another three: 451 Group, a New York-based firm that offers analysis on emerging trends in enterprise IT; Litigation Notes of Westport, Conn., which examines the investment significance of corporate legal disputes; and NPD Group, a Port Washington, N.Y.-based provider of data from retailers.
Open Minds is in ongoing discussions with a number of other potential candidates, says John Svolos, head of sales and marketing for the service. "We think there is an opportunity to grow the platform significantly." The firm is targeting resources that "really add to the investment process of the buy-side client base," adds Svolos.
The first research firms on the platform included Audit Integrity, a risk analytics company in Los Angeles; HPDI, an Austin, Tex.-based provider of data and analysis on the oil and gas industry; and Decision Resources of Waltham, Mass., which focuses on the health care sector. "Our goal is to get as many different industry groups covered with best-of-breed, unique providers of independent research," says Bird.
No Investment
Open Minds is now neck and neck with competitor Hudson Street Services, which Goldman Sachs launched in early 2007. Unlike Open Minds, Hudson Street makes strategic investments in its research partners, which now total ten. "One differentiating aspect of Hudson Street's model is we provide the strategic capital that many companies need," notes Hudson Street head Tom Conigliaro. "In return, we earn the exclusive right to distribute their products and services to Goldman Sachs clients. And we earn a referral fee for doing so."
One exception to Hudson Street's exclusivity policy is Asset4 of Zug, Switzerland, which tracks corporate performance on environmental, social and corporate governance criteria. Asset4's services are also offered on Open Minds.
Despite the current market climate, Open Minds has seen continued growth, according to Svolos. "There's no doubt that the buy side has been affected by market events and firms reacted differently," he says. "Many remain actively engaged in finding usable resources that can enhance their investment process, [while] others are winnowing back the number of providers that they pay. But even in the tough early months of 2009, clients continue to subscribe to Merrill Open Minds offerings. We find that encouraging."
The research on Open Minds is not a substitute for Wall Street's conventional proprietary research, says Svolos. "Rather, it's a resource that's additive, in that clients can use this effectively in combination."
Currently, Open Minds is in the process of going global. "We've already marketed several providers in London," says Svolos, adding that the firm will look for "natural opportunities to grow further outside North America."
Young Business
The alternative research field is still evolving, says Bird, who sees offerings like Open Minds gaining steam as familiarity grows. Wall Street "is still trying to figure out how they can work in unison with it," explains Bird. "It wouldn't surprise me if other firms roll out more directed product offerings in this space." He points to UBS's purchase last spring of a minority holding in Integrity Research Associates, a New York-based advisory firm that offers alternative research. UBS announced another investment in November, taking a stake in GovernanceMetrics International, a corporate governance research and rating agency in New York.
