The Brainstorm

InfoEx has entered into a definitive agreement with StreetBrains.

2009-06-08T09:46:00.006-04:00

StreetBrains is really excited to announce some great news!!

New York, NY – June 8, 2008 - InfoEx (the Information Exchange) has signed a letter of intent to purchase certain assets of StreetBrains.com, LLC. StreetBrains provides numerous services, including marketing, operational support, and e-commerce payment mechanisms for independent research providers. These bundled services allow independent research providers to focus nearly entirely on what they do best, cover companies. This technology also provides access for the independent providers to a quick and efficient method to penetrate the retail market and sell reports on a “one off” basis. InfoEx provides a platform that matches trading activity and user activity on the system with relevant information of all types by creating a profile for each individual user. This profile is derived by use of InfoEx's proprietary "relevance engine" and is also used for email filtering, real time alerts, aggregation of research materials, RSS feeds, and various forms of non-conventional and conventional information. The acquisition will also allow InfoEx to apply its targeting relevance technology, for the first time, to the retail market.

“What attracted us to StreetBrains was the way they act almost as a "Hedge-fund Hotel" for independent research providers. There are many times in which clients have stated they also want the opportunity to discover the "Diamond in the rough", in terms analyst coverage, but time constraints and information overload often prevent the discovery from happening. StreetBrains helps create the diamond and InfoEx makes sure it is seen by the exact person looking for it" stated Dean Stamos, CEO of InfoEx. “While InfoEx has created a unique platform for the targeted delivery of research and information to the institutional investment community, StreetBrains has developed an approach that facilitates research operations, reports, conferences, and webinars which will be distributed via the InfoEx platform" Mr. Stamos added.

The two firms began informal talks a year ago and began working together in the fall on a promotional campaign to attract investment analysts to the combined offering. “Working with Joe Cammarata and Dean on the marketing project and reviewing the technology InfoEx has created made for an easy decision to become part of the information platform that InfoEx has created. Having the flexibility offered through the InfoEx dynamic technology platform will permit the StreetBrains brand to grow. We intend to bring professional level independent research directly to all investors from the long term hold investor to the advanced institutional money manager. The InfoEx platform can accommodate our needs perfectly” say Lawrence Margolis StreetBrains’ Managing Member.

The new StreetBrains platform including an advanced retail online store is expected to be launched in June 2009.

About InfoExchange

InfoExchange, Inc. was founded in 2007 to revolutionize the way Wall Street communicates. Using its patent pending Information Smart Router™ technology, InfoEx references clients’ trading data to determine what information is relevant to them -- streamlining information flow, reducing “electronic noise” and creating value by delivering highly-customized, timely content straight to the desktop or mobile device. (www.infoex.com)

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For more information please contact lmargolis@streetbrains.com or call Lawrence Margolis at (212) 430-3030.

2009-02-10T12:02:00.009-05:00

Are you ready for StreetBrains 2.0?

The Investor’s Information Marketplace

Over the last several months, we have been building our next generation research platform. The new platform has many enhancements including vast search capabilities so that users can find the information they need when they need it and a robust electronic commerce solution so that users can purchase reports and subscriptions any time 24/7. We will even be able to send your customized alerts right to your iPhone!

More providers. When the new system launches you can look forward to reviewing research form our growing research pipeline. We currently have over 110 providers moving towards the launch pad!

We are beginning to role out the new platform to a larger audience everyday. All existing users will receive a link to the new site as we finalize the functionality and complete beta testing. For more information please call your representative directly or our general information number at (212) 430-3000.

We look forward to providing a full scale roll out over the next couple of weeks so that you can begin enjoying all the benefits of becoming a member of the Investor’s Information Marketplace.

Thanks, Integrity!

2009-02-03T13:31:00.007-05:00

Yesterday, Integrity Research blogged about the current state and future of independent research and how the Wall Street woes are affecting analysts.

Integrity touches on some sobering truths regarding the industry, mentioning that ‘grim days’ are ahead. That might sound bleak, but StreetBrains wants you to know that not all’s lost! While analysts may be suffering and the future looks ‘grim’, we’re providing an answer. StreetBrains is a solution to your research needs. By improving our technology and adding more research providers on a weekly basis, we’re leaving our mark on the industry.

We may be in desperate times but there’s always a way to rise above. If you’re making scrupulous decisions and doing right by the people you serve, then you’re already one step ahead of the curve.

We thank Integrity Research for pointing out that StreetBrains has been making moves and adapting to the Wall Street woes. We appreciate being noted as one of the few research providers who are ramping up their offering in response to the poor economy.

StreetBrains has decided not to be a victim. We’re choosing to rise above the problems of the industry and strive for something better. Downsizing our offering would only hurt us; we’ve chosen to upgrade. With the imminent launch of StreetBrains 2.0, we’re proving, day in and day out, that we are here to compete and show the buy-side how good research really gets.

Young But Seasoned

2009-01-22T15:44:00.008-05:00

Earlier this week, during a call with potential client, we were asked, "Why StreetBrains?"

We noted the best-of-breed research portal, the enterprise search, the dynamic list of research providers, and all the other benefits our content and technology have to offer. But somehow, that wasn't enough. This client needed more. They were concerned that StreetBrains might be too young, too inexperienced, too new.

We are a young company. There's no denying that. Those concerned with the age of our business have every right to ask, "Why StreetBrains?" If you're an investor looking for research or investment strategies, you want to be sure that the source is stable and well versed in the language and history of the business.

As Barack Obama mentioned in his inauguration speech, we are a young nation but we must choose our better history. At StreetBrains, we do just that. While still a young organization, we have decades of Wall Street experience under our belt. Our analysts are well aged in the industry, some working in their field since they were teenagers.

The platform is new, but the content is seasoned.

We have built the StreetBrains platform around a large and strong group of independent providers who tackle their covered industries with a voice of experience and professionalism. Their work is second to none and we are proud to offer them an outlet that appropriately markets their value.

Though young, we choose our better history. We choose the pedigree of excellence that our content provides. We see ourselves as a very seasoned company and we are proud of the many analysts and research providers who have allowed us to offer the best information money can buy. We will be called too young, too inexperienced, too new, but we won't blink an eye because we are confident in the content that defines us.

More Providers Every Week

2009-01-21T11:09:00.006-05:00

With over 80 providers in our pipeline, StreetBrains is dedicated to delivering the best, most diverse, and widest selection of independent research providers to our clients. We understand that investors deserve information exactly the way they want it. Probe Financial Associates and EMEA Research are just two of our newest research providers offering expert hours, reports and investment updates. Check back with StreetBrains.com for more on these new products as we launch our new research portal.

Probe Financial Associates, Inc. (PFA) provides research expertise in telecommunications and relative IT sectors. PFA is the leading source of independent, unbiased research in the telecommunications/IT industry. Probe assesses the complexity and change that characterizes these industries. Our experts have extensive industry experience and the finest record for correctly forecasting major changes.

PFA offers coverage of a wide array of industry topics and companies, including these primary areas of expertise:

IP Networking and Services (VoIP, IPTV and other areas)
Wireless (mobile, broadband and other aspects)
Cable and Satellite (broadcast, content and communications)
Established Telecom (carriers, competition and M&A, equipment cos.)
PFA's Client Programs and Services

Probe Financial Associates offers an extremely attractive value proposition to a wide variety of investment management firms. We cover the complete range of companies, from mega-sized industry giants to mid-to-large cap companies, down to small and emerging players.

Our level of expertise is unparalleled and unchallenged. We are prolific in producing written reports that are always geared to important issues and developments or to relevant industry companies.

EMEA Research provides research focused on country allocation in Eastern Europe, the Middle East & Africa. EMEA Research discovers value by examining the intersection of political risk and investment opportunity.

EMEA Research offers risk-adjusted strategies focusing on country allocation, sector allocation and stock selection. With the exception of South Africa, equity markets in EMEA, trade in reaction to investor’s assessment of how news impacts a nation’s economic prospects and political risks. EMEA Research has observed that – even in the most liquid markets – if one sector makes an independent move, the entire market will follow; the best/worst stocks in their own universe trade up and down with the overall market regardless of fundamentals.

Stacia Hachem works with a team of independent consultants focusing on in-country investment opportunities & quantitative research.

An extensive rolodex, based primarily in EMEA countries, is put to use to obtain in-country opinions on companies, industries, sectors and countries.

PatternWatch Speaks with Steve Malzberg

2009-01-14T14:43:00.006-05:00

Steve Frenkel, senior analyst of PatternWatch, will be on the Steve Malzberg Show on WOR-710 today at 4:50pm. They will be discussing various topics related to the economy and markets. If you're near a radio or computer, tune in to hear what Frenkel has to say. He will be offering some fresh insight that draws from all three of his PatternWatch products (Stocks; Currencies/Commodities; Interest Rates).

http://www.wor710.com/

http://www.malzbergtalk.com/site/?page_id=17

If you are interested in speaking with Steve or receiving samples of his reports, please contact StreetBrains at 212.430.3000.

New Year's Resolutions: It Might Be Too Late for Bernie Madoff, But Not for StreetBrains!

2008-12-31T06:50:00.005-05:00

Not everyone believes in resolutions. As it is, a lot of people are too busy to make changes - too stuck in their ways to lead a more positive personal and professional life. Some people think resolutions are cliche and insignificant. But after this year, wouldn't it be a good idea to introduce something new? I'm sure there's a few people in our industry who will probably resolve to add a bit more due diligence to their operations. In the end, there's always something we can do - setting goals, making changes, being more careful.

At StreetBrains, we started early. We've been working on our resolutions for months as we've been looking to bring the right kind of change to Wall Street at a time it needs it most.

We've resolved to improve our research offering. More analysts, more information - a pipeline of research providers that is making StreetBrains the largest and most diverse research portal.

We've resolved to make it easy. Our old site was good, but now it's better. Information catered to your tastes. No one goes to a steakhouse to see a vegetarian menu. Why should your user experience on our website be any different? Want to see research on telecommunications? Get it directly without having to comb a jungle of information.

We've also resolved to be the best. We don't want to be that company that reminds you of some other company in the Wall Street research space. We want to be unique and we want your experience on our site to be unique. StreetBrains is filling a void. As we see it, we are setting a new standard. We've resolved to build a new platform for investors that is best of breed.

We welcome you to be a part of our resolutions.

Looking Forward: StreetBrains '09

2008-12-23T16:08:00.007-05:00

While we try to forget about '08, is there something to be learned? Maybe a few things, but let's not dwell on the disappointments. The TARP, Lehman Brothers, Bernie Madoff, bad markets... the list goes on.

'09 should be better, right? It has to be.

At StreetBrains, we're not going to focus on the negative news. '08 has taught us that our industry isn't perfect no matter what paper you print it on. So what?

The answer is to move on. Keep going. Do the right thing. Think and act positively.

Information Matchmaker

It's a new year. StreetBrains loves a new year. We love staying fresh, we love changing it up and we want you to benefit from our embrace of change.

Our new website, StreetBrains 2.0, will soon be launching. With our new research hub, we will be your information matchmaker. Have a research need? No problem. We make it simple and easy to get the insight you need to make trading decisions. We are opening the door to an information portal that will match your profile with the right research. Looking for research on the Middle East? Want to know when to buy energy related stocks? All of our research is at your fingertips. We have a research pipeline of 76 providers representing over 170 analysts - one of the largest teams on Wall Street, independent or otherwise.

StreetBrains has been working very hard to make '09 a very exciting year. We want you to share the excitement with us.

Change? It’s our obsession.

2008-11-21T13:48:00.006-05:00

We’re greeting the changes in Washington with open arms. Being Wall Streeters, it’s the lifeblood of our industry. Change has been a part of, and continues ceaselessly, in our industry; the challenge is to meet it. We’ve embraced the shift by responding to your needs. It’s that simple.

Barack Obama is winning with ‘Change’ – so are we. We’re living and working in an era where ‘stagnant’ is a dirty word. All of us have to learn from our environment and pay close attention. If you’re not adjusting to a variable wind, then you’re going to be blown away.

Wall Street’s changing too…

For five years, Institutional Investor has published a ranking of what the buy-side values most in their research. What Investors Really Want is a ranking that highlights the concerns of institutional investors. The following are lists of priorities over the past 2 years that were gathered in the All-America Research Team survey. Take a look at what has changed…

2007

^Rank	^{Sell-Side Research Attribute}
¹	^{Access to Management}
²	^{Industry Knowledge}
³	^{Analyst Accessibility/Responsiveness}
⁴	^{Special Services}
⁵	^{Analyst Integrity/Professionalism}
⁶	^{Useful and Timely Calls and Visits}
⁷	^{Financial Models Idea Generation}
⁸	^{Communication Skills}
⁹	^{Written Research Reports}
¹⁰	^{Stock Selection}
¹¹	^{Earnings Estimates}
¹²	^{Management of Conflicts of Interest}

2008

^Rank	^{Sell-Side Research Attribute}
¹	^{Industry Knowledge}
²	^{Analyst Accessibility/Responsiveness}
³	^{Analyst Integrity/Professionalism}
⁴	^{Access to Management}
⁵	^{Special Services}
⁶	^{Written Research Reports}
⁷	^{Idea Generation}
⁸	^{Useful and Timely Calls and Visits}
⁹	^{Financial Models}
¹⁰	^{Earnings Estimates}
¹¹	^{Research Delivery}
¹²	^{Stock Selection}

Source: Institutional Investor

The Fundamentals of the StreetBrains Formula:

1. Industry Knowledge… That’s StreetBrains.

2. Analyst Accessibility/Responsibility… That’s StreetBrains.

3. Analyst Integrity/Professionalism… That’s StreetBrains.

4. Access to Management… That’s StreetBrains.

5. Special Services… That’s StreetBrains.

We could go on, but you get the picture.

Since our inception, we’ve been two steps ahead of the curve. When we see change coming, we move with it instead of against. In our industry, where there’s a need, there’s StreetBrains – that’s the motto we live by and that’s how we succeed.

Pioneering Website

One item that didn’t even make the list in 2007 was ‘Research Delivery’… Inside StreetBrains’ forthcoming, attractive website and portal, information will be at everyone’s fingertips. We’re giving you research exactly the way you want it. No complicated delivery methods, no unwanted emails… just a one-stop universe of information where you navigate and access remarkable research in the most fundamental and innovative way possible.

We’ve faced the challenges, we’ve embraced change. Sometimes it’s as simple as knowing what people want.

Hitting the Streets

2008-09-25T15:29:00.004-04:00

It was an interesting scene at 745 7th Ave!

Calling All Analysts!

2008-09-24T14:20:00.005-04:00

Unfortunately, the markets are a mess and it’s causing some panic at bulge bracket research desks all across the industry. If you’re a Wall Street analyst that hasn’t been laid off yet, then you’re probably sitting in your office wondering what’s next.

In uncertain times, you have to do what right for you. At StreetBrains, we empower analysts to do just that. No matter what happens, the buyside needs to maintain coverage and access to talented analysts. We deliver targeted research to powerful clients. Our operation proves that you don’t need put limits on investment insight. The analysts write research on their terms – we do the heavy lifting.

Street Brains values the diversity of talent in the industry and is looking for new research providers to join our platform. In an effort to court those whose security in the bulge brackets may be a bit doubtful, Street Brains will be hitting the road with a billboard truck that will be touring Manhattan. Keep an eye out for our sign, and if you would like any more information about who we are or what we do, or if you’re an analyst looking for details about joining our platform, feel free to contact us at 212.430.3000.

Key Messages of the Campaign

Street Brains offers Wall Street analysts the opportunity to write valuable investment research on their own terms and cover markets the way they want to, with more freedom than ever before. If they go independent, they have more choices. Through our partnership with InfoEx, we enhance the delivery of information to our buyside clients, offering seamless navigation of research.

Street Brains analysts draw outside the lines. In our view, duplication of analysts is a good thing. We empower individuals to work outside the restrictions of bulge bracket firms.

Street Brains is a trusted research partner, providing services that help the buyside during this harsh time of consolidation and change. We offer continuity. With InfoEx, we provide relevance in information gathering – content directed the way you want it.

The buyside needs to maintain coverage and access to talented analysts. With the appropriate exposure, our analysts attract the attention of many powerful clients.

Ours is a “virtual” world. If an analyst loses his infrastructure, does that mean the buy-side should suffer decreased coverage? Street Brains provides a new kind of infrastructure where research and targeted distribution operates hand-in-hand.

Street Brains provides a conduit for virtualization of research departments. Street Brains helps with the heavy lifting – marketing, sales and distribution. Our partner, InfoEx, helps maximize the distribution channels and caters to the client through methods that best serve their needs.

A Time to Vet

2008-09-05T14:20:00.004-04:00

We do it every day, whether we realize it or not - when we meet and greet, when we dine, when we work, when we watch TV. We are vetting everything in increments. We are judging people, situations, events, products, even ourselves, almost every hour of the day. We quickly roll questions around in our heads like laundry in a dryer until we can make a decision on whether or not we want to accept someone or something into our lives.

Sarah Palin had to overcome a few obstacles this past week. She proved that no matter who you are, what you look like or how you speak, someone will always be asking, “How’d you get here?”

Who is she? What’s her background? Why Palin? Why a governor from Alaska? What has she done?

On the heels of her VP announcement and the unfolding of her teen daughter’s pregnancy, the republican vetting process was called into question. Everyone wanted to know how much exploration went in to her nomination. Many were confused as to what a vetting process even looks like. In the end, no one really knows what went into the vetting of Governor Palin, but if you’ve ever stringently vetted someone before, you might know that its not like finding a good cup of coffee – it’s so much more.

Interestingly, the StreetBrains website enjoyed a spike in web traffic this week with many visitors viewing our vetting process page. Many seemed to want to know more about the process and what it meant. Were they looking for answers as to how Sarah Palin was evaluated to be McCain’s running mate?

At the core of the StreetBrains vetting process is a meticulous examination of value. Before an analyst joins our platform, we want to know exactly what he or she has to offer our clients. We assess their professional history, methodology, points of differentiation, and the unique value their research provides. What can this research provider deliver? Do they have credibility? What do they do and what is the advantage?

Vetting is not a simple procedure. It takes a good amount of time and requires our undivided attention – we know because we do this every day. Essentially, the process necessitates a series of pointed questions that should challenge whatever or whomever you are vetting.

The days of plastering a pretty face on the screen and assuming your audience will bite are long gone. The recent interest in vetting proves that your audience needs and expects more. Vetting is a process that should be taken seriously. Our analysts are put through it, our leaders are put through it – perhaps accountability isn’t lost on our society quite yet.

Quattrone's State of the Union?

2008-08-13T14:09:00.002-04:00

The New York Times published an article yesterday by Andrew Ross Sorkin (“Analyzing Wall Street’s Research”) detailing Frank P. Quattrone’s statements at the AlwaysOn conference in California. At the conference, Quattrone offered his distaste for Eliot Spitzer’s Global Settlement, making the argument that it has hurt small cap business and dulled the competitiveness of these companies in the US financial markets.

In the end, Quattrone would like a repeal of the settlement but would still expect to see disclosure of banking / research conflict.

Quattrone’s argument is quite compelling (and self-serving). After all, it doesn’t really matter if research and investment banking sleep under the same roof – the key to keeping it rewarding to the industry is through disclosure. Even with the Global Settlement, we are not working in a conflict-free world, thus the purpose of the settlement remains terribly unresolved even though its aftermath is still being felt by the small cap. The fact remains that there is still enough space in the market for everyone – independent research providers continue to clearly add value.

Better disclosure at investment banks benefits the industry greatly, and might be the answer we’ve been looking for. In our opinion, if you want to distribute conflicted research, it should run with an asterisk that discloses that conflict. Certainly, this would be more conducive than putting asterisks next to Barry Bonds’ home run record. If you want to play ball, play by set of rules.

That would be fair, right? Investment banks should be held to such expectations. Disclose your conflict, play ball; in a park with rules where disclosure terms are fair, there’s enough room for all the players.

There will always be an audience for independent research. If the investment banks distribute research with proper disclosure, then Quattrone’s right – there’s no reason not to tear down the wall.

Seems Like Old Times

2008-08-07T08:23:00.003-04:00

It’s déjà vu all over again!

The Financial Times published an article on their website yesterday detailing the apparent plan by Citigroup to shift its equity research operations into its institutional securities division. The Global Research Settlement encouraged Citi to keep these two entities separate, but this news indicates that Citi is looking to cut costs and perhaps fold research back into banking.

Mom always said…

… If you don’t have anything nice to say, don’t say it at all. Ironically, that’s the problem.

The reality is that the research coming out of investment banks has never been conflict-free. No legislation imaginable could force Citi, or anyone, to write truly unfavorable recommendations for a given company. When such a high percentage of investment bank (IB) research is positive, it’s difficult to say that the insight is uncontaminated. Investment banks don’t want to make enemies.

Therein lies the problem. There is a significant difference between the research churned out by Wall Street and that which is delivered through alternative providers. No legislation could possibly curb the inherently lopsided predisposition of IB research. This new plan by Citigroup is just one indication that any concession made by the investment banks is probably on the way out the door. Seems like old times, indeed!

Making Sense

Citigroup wants to turn a cost center into a profit center; the only way to do it is to fold equity research back into institutional securities. It makes sense, but at what expense?

This is likely just the tip of the iceberg. There’s no real incentive for investment banks to continue dividing these segments of their business. The last decade was just a dream – we saw attempts to make research more unbiased, but the world where IB research is infallible never really existed.

But what will this mean for the future? Once the research settlement ends in 2009, there’s no telling what will happen. If the IBs go back to doing business the way they’ve always been, then independent research providers will be even more attractive. Conflict-free, unbiased research will always have a place in our market considering that the IBs will likely revert back to their old ways.

Bugs, Quirks and Hiccups

2008-07-18T12:00:00.005-04:00

Apple’s new 3G iPhone launched last week greeting the market with fresh applications, cheaper prices, and faster speeds. Enter, hiccups.

Since last Friday, iPhone users have encountered several issues ranging from poor MobileMe functionality to complete iPhone black-out. If you change things up, there’s always the possibility that any well-laid plan will meet setbacks, especially when launching a high-tech product like this.

Should Apple lovers be shocked? If you’ve bought an apple product, you’re probably in the majority of consumers who have found most of their devices flawless and their compatibility seamless. You would expect the quirks to be minimal, perhaps non-existent. However, the reality is that nothing is perfect; Apple customers understand that problems may arise. Everyone is still buying iPhones, right? Apple’s brand is still in tact – they can afford to have hiccups.

Would You Still Buy Research?

Regardless of the offering, a product must add value upon its release. Apple wouldn’t launch an iPhone the size of a Kindle with a fatal flaw in its wireless technology – Apple knows better than that. There would have to be an incentive to buy, adding value to your work or your life. Hiccups or not, iPhones will still be flying off shelves because of the value offered.

Wall Street is a different world, and a research product is far different from an iPhone. When held to an investor’s high expectations, research providers are not given leverage – there is no room for error. Research providers must be resilient, precise and completely entrenched in their work. Every part of the process must add value. There isn’t a research provider anywhere who would hand-write their insights on scroll paper, seal it with wax and then send it to a client via horse courier – at least not in this century.

The same is true for the content. What adds more value: the analyst who walks the factory floor, or the analyst who makes phone calls asking what the factory floor looks like? The standards of a research provider must be high, as it should be assumed that someone is always paying attention to quality. At StreetBrains, we’ve identified realistic strategies and goals that enhance our products and their distribution invaluably. Our clients demand the best and we pride ourselves on delivering just that.

Whatever you offer must beat expectations, so as to never raise doubt about your value. In this world, you can’t afford to deliver bugs or duds; unless, of course, you have the iPhone 5G.

And the All-Stars Keep Coming...

2008-07-11T10:57:00.003-04:00

I've come to the conclusion that the two most important things in life are good friends and a good bullpen. -Bob Lemon

The upcoming MLB All-Star Game reminds us of one important point: victory is the work of many great players.

The All-Star Game transcends a star-studded publicity stunt, remaining a competition where the best players can showcase their larger-than-life abilities. The bullpen is the key – the bases would be empty without it.

At StreetBrains, we are adding to our list of all-stars, stacking our bullpen to exemplify the best in investment insight. Our roster is incomparable and continues to grow. Just three hours before the first pitch is thrown at Tuesday’s All-Star Game, StreetBrains will be unleashing our newest all-star.

At 2pm on July 15th, Joe San Pietro, a former aerospace/defense analyst at Wachovia, will be hosting a webinar that will informally launch his brand, DEFINITIV, on the StreetBrains platform. His addition to our bullpen is just one of the many ways in which StreetBrains is adding value and sustaining victory.

DEFINITIV is one of the best sources for aerospace/defense research. With a large roster of industry contacts and unmatched experience, San Pietro is able to find hidden value and strategic plays within the sector.

StreetBrains is excited to continue our all-star tradition.

If you would like to join the DEFINITIV webinar on Tuesday, July 15th, please contact Robert Livingston at 212.430.3043 or James Kempski at 212.430.3050.

The CCA/Soft Dollar Paradigm

2008-06-26T15:33:00.010-04:00

The following post answers common questions related to CCAs, Soft Dollars, and how to use these arrangements to pay for 3rd party research services.

What are Client Commission Arrangements and how are they different from traditional soft dollars?

A Client Commission Arrangement – or CCA – is an arrangement where a fund manager, or trader, will instruct its executing brokerage firm to allocate a designated portion of the commission dollars it pays to the brokerage to in turn be used to pay for legitimate research services. In this scenario, the brokerage firm sends payment to the approved research service on behalf of the client (fund manager, or other).

Soft dollars, which have previously fallen out of favor due to abuses by investment managers, are monies designated from a commission pool to pay for research and services. CCAs, though paid for through the same commission pool, differ as they are seen as a far more transparent form of payment for independent research.

With an easier payment arrangement available to fund managers, paying for “a la carte” research and services – in this case, alternative research – has become more streamlined, and therefore the alternative research market has boomed in the past few years, in tandem with the use of CCAs. According to Integrity Research, the alternative research industry spawned $1.8 billion in revenue in 2006 and is expected to grow to $2.5 billion by 2010.

CCA usage has emerged as the most attractive way to maintain best execution pricing while also obtaining the highest quality research.

What are the advantages of “Unbundling” execution from research?

The advantage of unbundling lies in maintaining low execution fees and taking control over the quality of investment insight your fund demands. By unbundling these two important business components, clients are able to ensure they are paying for only best execution (i.e. 1/10 of a penny), and then can pay separately for research that their firm truly values. This capability eliminates the existing problem that many funds encounter with bundled services: they aren’t certain what they’re paying for – execution or research. In some cases, the research is not helpful to clients, but they perceive that the research comes ‘free’ with the cost of execution. Unbundling forces both execution providers and research providers to separately provide the highest quality offering, and ensures that the end user receives the best in both services.

How do I know if I am able to use CCAs? Who is qualified to pay with soft dollars?

If you are an investment manager or any type of institutional investor looking to obtain third party research, you are eligible to pay using CCAs or soft dollars. (See below for a more in-depth description of services that can be paid for via CCA.)

What are the advantages of using CCAs to pay for research?

CCAs are a smart and effective way to generate funding for your research initiatives. Investment banks want to maintain their execution business with you, so they will work with you to parcel your CCA dollars as you deem needed. As a result, you pay less for execution and take personal control over the research you wish to receive.

Is StreetBrains able to be paid for via CCAs?

With regards to Section 28(e) of the Securities Exchange Act of 1934, StreetBrains falls under the legal confines of Section 28(e) and thus our research can be provided through CCAs and soft dollar arrangements. We meet the following criteria:

(1) It must fall under the statutory limits of 28(e)
(2) It must “provide lawful and appropriate assistance in the performance of his (the advisor) investment decision-making responsibilities.”
(3) The amount of client commissions is reasonable in light of the value of the products or services provided by the broker dealer.”

In defining Street Brains as a “research service,” we meet the following clauses as stipulated in 28(e):

(A) furnishes advice, either directly or through publications or writings, as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the availability of securities or purchasers or sellers of securities.
(B) furnishes analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts

How do I go about arranging CCA payments for StreetBrains research?

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'Ubuntu' Trumps 'MVP'

2008-06-19T09:52:00.003-04:00

If you’ve watched the Boston Celtics this season, you may be familiar with “ubuntu” - the team philosophy employed by the 2008 ‘Celts.’ Wikipedia describes Ubuntu as “an ethic or humanist philosophy focusing on people’s allegiances and relations with each other.” (You may also recall the concept of unbuntu as it played out in the film In My Country.) Anyways, it would seem that the concept of ubuntu was officially validated when the Celtics clinched the NBA title with a 40 point win to put the exclamation point on their 66-16 season.

The amazing feat accomplished Tuesday night by the Boston Celtics – overcoming last season’s embarrassingly disastrous results only to come back just one season later and secure the title by succeeding over the Lakers and their league MVP – the concept of ubuntu could certainly be deployed within the investment research industry.

If we’ve learned one thing from a team’s defeat, and from the strife in the financial markets in the past year, it’s that when you hang your hopes all on one big player, you’re setting yourself up for failure.

There’s No ‘Kobe’ in ‘Team’

In the investment research world in particular, the crumbling of major financial institutions, such as Bear Stearns, has led many top quality analysts to be orphaned and without partnership and affiliation. These analysts are still great analysts, but the current market volatility makes it difficult for many firms to justify the expense of a single ‘MVP’ analyst – no matter how Kobe-like he or she may be.

The research world, instead, has shifted. Our marketplace has become one where investment firms need more than just one top quality analyst on a specific sector. They need more than one broker executing their trades in order to protect themselves from blow ups. They need ubuntu. But employing a full team of great analysts internally can be costly, as can executing trades through too many brokers. Firms like StreetBrains offer the perfect alternative to solving the research conundrum.

Essentially providing ‘fractional’ ownership of an analyst, StreetBrains is able to give clients access to exclusive and unique insights from top quality analysts. Under this model, clients are able to utilize the full ‘strength of the bench’ when needed. In a volatile market, wouldn’t you rather have the option of going to Eddie House, PJ Brown and James Posey than continue to hope and pray that Kobe’s got a trick up his sleeve?

We think that great analysts work best when complimented by other great analysts. We know our clients expect greatness, and we stack our roster to ensure that their expectations are fulfilled.

We Called It

2008-05-21T11:34:00.005-04:00

“It ain’t braggin’ if it’s true!”

Gotham Research, one of StreetBrains’ key brands, has had a very profitable ’08. Some highlights include:

On 5/14, Gotham closed its position from 12/13/07 on Hercules Offshore (HERO), up 26.61%.

On 5/15, they closed a position on EMCORE Corp (EMKR), up 23.075% from 4/3/08. Additionally on this day, Gotham closed their position on FelCor Lodging Trust Inc. (FCH) from 2/27/08 which was up 18.93%. Gotham also closed a spread on Occidental Petroleum Corp. (OXY) vs. Ultra Petroleum Corp. (UPL) up 6.97% from 1/25/08.

On 5/20/08, Gotham closed on Royal Gold Inc. (RGLD), up 13.32% from 5/2008; Seabridge Gold (SA), up 14.56% from 5/9/08; DryShips Inc. (DRYS) from 1/25/08 up 92.08%.

On 5/21/08, Gotham closed spreads on Altera Corp. (ALTR) vs. SPDR trust (SPY) up 24.60% from 10/25/07; and Platinum Underwriters Holdings (PTP) vs. PartnerRe Ltd. (PRE) up 11.33% from 10/19/07.

2nd Degree Burn: The Information Loss Superhighway

2008-05-14T17:02:00.002-04:00

Surfing is often considered a territorial sport. It’s likely that passionate enthusiasts are drawn to the ownership of a hot spot, compelled to keep it to themselves or within a tight group.

Before paddling out this past weekend, a fellow surfer came up to me and explained that I couldn’t surf his break and that I would have to find somewhere else to go, down the beach about a half mile. Looking up and down the unobstructed 18 miles of shoreline, I thought about how ridiculous this was, especially considering that he had no idea where I was intending on heading out in the first place. Also, I didn’t recognize him; having known this spot for years, this triggered a warning sign in my head.

We stood on the beach talking, motioning through our wetsuits, trying to come to some sort of understanding. I kept the focus on his total lack of solidarity while he was most concerned in why I was picking this particular zone to paddle out. After a few minutes, it was clear that he was just waiting for me to tell him where to get in the water because he didn’t even know the break and was ultimately looking to see what I was going to do.

I was going to paddle out where I originally intended, directly where he didn’t want me to go. Since he was terribly stubborn about it, I knew he would do the exact opposite of me just to have a quarter mile stretch all to himself (probably the only thing he wanted in the first place). Instead of asking me straight out what was good in the break, he tried to strong-arm me into giving him information.

He ended up paddling out where he had originally wanted me to go. I could have told him about the dip in the shoreline over there that made the waves short and the rip current strong. And I could have told him about the sandbar that would have killed any swell energy close to shore. But why would I want him to come back? Why would I want him to know what I know? He hadn’t earned it.

This got me thinking about protecting information that you value and respecting it enough to not risk contaminating it by providing it to others who haven’t done the legwork.

Insights in the Hands of Expert Networks

If your expert network isn’t yet causing a headache for your compliance department, then they probably have you wondering, “How can they potentially compromise my investments ideas?”

‘Information loss’ is the nice way of saying, “You just flushed your best ideas out to sea.” In speaking with an expert network, you probably let them in on your insights, giving them a starting point from which they can begin to help you build support for your idea. In this process, there is no definitive standard in place to keep your ideas out of the hands of others. In trying to grow your ideas and generate appeal for them, you’ve essentially released them to the market, uncertain of how they are being assessed and used. Your ideas are lost. You’ve opened the door on your security, your intellectual assets now in full view.

If one day you pick up the phone and gather some insights from an expert network participant based on your impending investment decisions, take pause and think about how vulnerable your idea is to being compromised.

Communicating your ideas to expert networks is a risky venture that can potentially put your private insight on the Street, making your unique idea fodder for the masses.

As we mentioned last week, expert networks are valuable in theory, but when weighing the risks, there can be many uncertainties.

You wouldn’t sit in the middle of Bobby Van’s Steakhouse spewing your next best idea in earshot of your competition. Why would you openly discuss this information with an expert network?

‘Information loss’ is going to happen in any business. It’s the reason why painters don’t talk about their brushstrokes; why scientists don’t share their notebooks; and why Street Brains doesn’t email reports through highly accessible PDF documents. You want to make sure that limited means limited.

In working with an expert network, an expert has to take into account any insights he’s gathered from his conversation with you – that information is now part of his knowledge and expertise. When the expert picks up the phone to discuss it with others seeking his “expertise,” your conversation with that expert may very well help to shape that expertise. If your goal is to generate alpha – as is the case for most institutional investors – you put it seriously at risk when you rely on a source that is not accountable to you.

Holding the Hot Potato: The Expert Network Burn Factor

2008-05-09T12:10:00.001-04:00

Should we be shocked to learn that our buy-side friends are a little concerned over the compliance problems that expert networks pose? In theory, it sounds nice to be able to shop for experts who will laud your investment ideas, pushing your good measure with their stamp of approval. However, what happens when that network lets you down? The paper trail won’t lead back to an analyst and the expert network surely won’t be sweating the mistake. No one wants to be holding the potato when the music stops, but without a doubt, it winds up in buy-side hands.

Integrity Research shows that 45% of surveyed buy-side compliance professionals are somewhat or very worried about compliance problems that may arise from their use of expert networks.

It’s only a matter of time before we see the crackdown. Without a stringent vetting process, expert networks will continue to cause compliance problems for their clients. How do you qualify an expert? How is he deemed reliable? What is keeping him from supplying potentially dangerous information to institutional investors?

45% of compliance professionals may be asking themselves those questions, but what about the other 55? Are they not banking on a backlash?

Institutional investors have good reason to worry about their relationships with expert networks. When something goes wrong, if a mistake is made and the investor loses money, the investor can’t just turn to those experts and say, “He did it.” When using the expert network, an investor is forced to ‘proceed at their own risk’ and take responsibility for any errors that result. As is usually the case with the financial markets, this is a useful – and often lucrative – way to operate…right up until the point where a big trade blows up based on faulty information.

Remember: If you wind up with a hot potato, the game’s over.

Farewell to Desk Jockeys: Show Me The Money!

2008-05-01T14:24:00.002-04:00

The era of desk jockeys seems to be coming to a close as institutional investors push research providers to go far beyond critiquing company earnings and writing up ratings based on quarterly estimates. With a struggling economy breathing down their necks, investors are putting the pressure on analysts to show them the money and give them the edge. But what’s really changing? Can the research world adapt?

Some might argue that independent research providers (IRPs) have been waiting a long time for this opportunity to shine and truly show how their value stacks up against their Wall Street brethren.

Bloomberg News recently published an article by Peter Robison (“What’s Analyst Worth, Not a Penny as Estimates Miss”) which discussed how Wall Street analysts were missing estimates based on a trend of inaccuracy and anti-sell mentality. The problem for those analysts is unfortunately often well outside of their control, and rather dictated by their firms and compliance rules – they are expected to sit at their desks and write, and to ‘fill in’ a research report template. These strangle-held analysts are seldom able to think outside of the box or to expand the scope of their analysis to include information that can set their research apart from their Wall Street competitors. This scenario presents tremendous opportunity for independent analysts who deliver insights that “fall through the cracks” in the Wall Street research silos.

Most independent analysts know that sifting through earnings reports, judging company profiles and keeping an eye on trends is only the bare minimum – a starting point. While waiting on GE earnings, you might find a Wall Street analyst locked up to the point that he’s flicking the top of his Dwight Schrute bobble-head and running his eyes to a rearview monitor mirror every time a coworker passes by.

On the flip side, you’d find an independent analyst walking the factory floors, speaking to government officials, competitors, customers, and any and all sources able to pave the way to the most actionable investment insight. These analysts acquire unique credibility in their sector while always delivering more to their clients.

“Necessary Evil”

Obviously, those who consider analysts a “necessary evil” have never had the kind of relationship that they should be having with their analysts. Reading that, it would seem as though receiving potentially profitable information is a chore. Cut the cord – if you’re not happy, then you should only need to take the trash out once. If an analyst doesn’t show you the money, then it’s probably time to show him the door.

The Information Pendulum: Swinging Back to Pre-’03?

2008-04-22T10:47:00.004-04:00

On Sunday, Integrity Research blogged about the consolidation they continue to anticipate amongst the 1,735 alternative research providers (ARPs) in their database. The blog got us thinking about the future. We certainly agree with Integrity that a consolidation period is coming, and it’s not a matter of if – but when.

We would anticipate that mid-2009 (if not sooner), when the global settlement ends, there will be an enormous shake up in the industry – the effects starting to occur now, as many struggling and mid-tier ARPs are looking to anchor onto larger entities in anticipation of losing settlement dollars.

The actual settlement dollars are fairly confined to a select few beneficiaries, but the demand for alternative research that came about as a result of the global settlement will still be threatened when the ‘cease and desist’ order ends in 2009.

The end of the global settlement will probably be a lot like Y2K – something that will drive a lot of buzz, but other than that, will be much ado about nothing.

Still, the attention that will be placed on independent research as a result of the pending ‘end’ to the settlement will drive many firms to reassess their research needs, and to consolidate accordingly.

The Consequences of Consolidation

Consolidation in the research industry is not necessarily a bad thing, as long as there are independent entities that band together and remain independent in their thoughts, ideas and transparency, and they remain entirely separated from their influential investment banking and trading brethren. Once that pendulum swings too far back in the other direction, investment information could end up back at square one.

The risk that lies ahead is if research becomes too consolidated, and those entities eventually become larger, more ‘groupthink’ type delivery models, much like the pre-’03 research that came out of Wall Street. The danger of ‘consolidated’ ideas is that it creates an unhealthy imbalance to the financial markets when many investors are making their moves based on commoditized information. As we all know too well from both the current credit crunch as well as the ’01 bubble burst, irresponsible investment research consumed by the masses can lead to fatal consequences for our financial markets and economy.

Consolidation in the research world is likely inevitable over the course of the next year. However, providers of independent/alternative research would be wise to band together in the name of independence, and to continue to push the envelope by delivering a diverse offering of products through a variety of channels to limited audiences.

'Best' Can Get Better

2008-04-15T13:00:00.011-04:00

Information is all about the source. Can brokerage-house analysts offer conflict-free insights? Even if so, is commoditized investment information ever great?

Navigating information is an art – having vision, critical. David McCullough shouldn’t need to travel through time to know what the air smelled like in Philadelphia in 1776. McCullough, a titan in his field, relies on the scripts of yesterday to produce truly great texts filled with unique, personal knowledge – information with vision. McCullough doesn’t want to write about something that most people already feel or understand. He doesn’t want his unique insight to be compromised or labeled inconsequential. Who would? Breadth and depth require the kind of independence and personality that is in short supply.

As indicated in a recent Barron’s article by Robin Goldwyn Blumenthal, “Sell-Side Story: Analyst Calls Ring Up Best Returns,” a new study from Goizueta Business School at Emory University showed that investors using brokerage-house research are likely to see higher returns than if they were to follow institutional and mutual funds. This sounds counterintuitive when you look at some of the year-end reports from ’07 that show Wall Street research had only 7% ‘Sell’ ratings, collectively, in a down market.

Are these analysts providing the ‘edge’ that investors want? Are investors outperforming their peers based on this commoditized and sanitized information?

‘Conflict-free’ and ‘exclusivity’: two terms which are not parts of a brokerage-house analyst’s vision. Yet, these two characteristics are the very traits that set great information apart from good information, ultimately providing the edge.

Investors can, and should, expect to receive actionable insights that provide them with an advantage over their competitors. The best information is surely not the kind that is universally accessible. There is a better way than the best way; the greater value is in preferred value. Institutional investors need to separate themselves from the masses to gain an edge in the marketplace. Limited distribution of information should be an integral part of the process for investors looking for that edge.

Most models are tragically flawed, leaving investors with more questions than actionable trade ideas. Street Brains offers the edge that investors are looking for – exclusive, unfettered, uncompromised insights. With the right vision, the best returns mean edging out your competitors. While an interesting barometer for the marketplace, the findings of the Goizueta study are a bellwether for mediocrity, not greatness. Valuable investment insight must conquer two key goals: beat market/sector averages and set investors apart from the pack.

Former Bear Stearns Research Analyst Launches REITology on StreetBrains Platform

2008-04-04T10:29:00.004-04:00

This week, StreetBrains announced the launch of REITology through an exclusive partnership with Amy Lauren Young, formerly of Bear Stearns’ II ranked real estate team. REITology offers insights focused on the global real estate sector with a primary focus on companies with retail exposure.

REITology marks the 10th independent research provider to join the StreetBrains Actionable Information eXchange (AIX).

Former Bear Stearns Research Analyst Launches
REITology on StreetBrains Platform

New York, NY, April 2, 2008 - StreetBrains, LLC, the Actionable Information eXchange (AIX), today announced that they have partnered with Amy Lauren Young, formerly of Bear Stearns, to launch REITology, a research product that will cover the $14 trillion global commercial real estate sector, with a focus on companies with retail exposure. REITology is the 10th independent research provider (IRP) to join StreetBrains’ AIX.

REITology will provide written research as well as expert hours through the StreetBrains AIX. From company reports, retailing perspectives and international trends, to sector overviews and thought pieces, REITology’s insights will be delivered through written reports as well as through webinars and client-only panel discussions. Each REITology license will also include 40 hours of expert access in which customers may speak directly with REITology senior analyst, Amy Lauren Young.

During the pre-launch phase, REITology hosted two webinar events for clients and prospects. The first covered “The Reality of Retail REITs: What Consumers Aren't Consuming” and the second, held after Ms. Young returned from the world’s largest real estate conference, MIPIM, in Cannes, France, discussed “U.S. versus International Real Estate: Where are the Recession-Proof Investments?” Qualified institutional investors may click here to be granted a free trial, as well as access to the REITology webinars.

Prior to launching REITology, Amy Lauren Young spent nearly 6 years covering real estate at Bear Stearns & Co. Inc. where her real estate research team was ranked 3rd in its category by Institutional Investor in October 2007. Ms. Young previously spent 3 years at Deutsche Bank (formerly Deutsche Banc Alex. Brown Inc.); and two years at Lehman Brothers covering Conglomerates. Prior to the sell-side, Amy worked on the buy-side for four years in Denver, Colorado at Wells Fargo.

Additionally, after eight years of studying Mandarin Chinese, Amy studied abroad in East Asia, spending six months in Hong Kong and China. Amy is also involved in the Young Executive Board of Camp Interactive, a non-profit organization. She is a sustainer of the New York Junior League, and also an Apollo Circle member of the Metropolitan Museum of Art.

"REITology offers a unique perspective on the international retail real estate market by factoring in investor psychology into its valuation model," says Lawrence Margolis, Managing Director of StreetBrains. "Their research fits into the StreetBrains platform by delivering information and perspectives that are actionable and offer clients an edge."

To learn more about REITology, please visit www.reitology.com.

To learn more about StreetBrains, please visit www.streetbrains.com or www.streetbrains.blogspot.com.

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StreetBrains LLC, the Actionable Information eXchange (AIX), provides limited distribution research and expert access to qualified institutional investors. Launched in May 2007, StreetBrains partners with unique independent research providers (IRPs) to bring exclusive analysis to hedge funds, proprietary trading desks, mutual fund managers and family offices via our proprietary research HUB. StreetBrains is not a broker/dealer, and operates free of any trading or investment banking conflict of interests and follows the Investment Protection Principles. To view StreetBrains' current AIX partners, please visit www.streetbrains.com.