To all the hard-working IROs who propped up Wall Street while the rest were frolicking at Niri’s annual conference last month: believe it or not, conversation around the pool consisted of a lot more than the ‘dish’ from the previous night’s party, extending well beyond small-talk and gossip to some very tough issues. Maybe the no-holds-barred reign of frankness was set by Christie Hefner, describing Playboy’s strategy to create adult programming that would be viewed for more than seven minutes at a time.
Dick Jenrette made no bones about the problem plaguing US companies: sell-side research that has become ‘incredibly superficial and short-term’ and ‘a foot in the corporate door for investment banks.’ On the other hand, he was alarmed at the ‘spin-doctor aura’ of the conference theme, ‘managing expectations’.
‘The sell-side doesn’t do research anymore; they’re bankers,’ declared a Silicon Valley hedge fund manager in a break-out session. ‘That’s your fault: you expect the sell-side to tout your stock.’ ‘Why are sell recommendations virtually non-existent?’ wondered one IRO.
In this month’s cover story, financial intermediaries brace for the impact of new rules and technology. But are they ready for the tempest of cynicism brewing among companies and investors? One valiant sell-sider suggested that calling a select few analysts after the market will ensure wide distribution of company news by the morning – advice fortuitously squashed by Niri chairman Tim Cost, who pointed out that technology lets him reach hundreds of investors directly and instantaneously.
Meanwhile, a young but scarily jaded buy-side analyst threatened to punish ‘gamesmanship’ among sell-side analysts publishing earnings estimates. He points out that twice a year he votes in Institutional Investor’s all-American analyst survey, and can easily withhold a vote that helps determine how much analysts are paid. And if he’s really peeved, he says, he’ll put pressure on the brokerage salesperson to ‘reign that analyst in’.
Then there’s the ‘bull syndrome’ and the ‘bear syndrome’, with certain analysts staking out positions along the spectrum of a company’s earnings estimates and following the pack just to maintain their respective renown.
IROs have long complained of the quarter-to-quarter earnings derby, but the real magnitude of the momentum equation is still dawning. Clearly managing expectations is more important than ever in the race for capital. Remember, you heard it pool side.
