Prime Executions, Inc. announced last week that it has entered the research business “in an effort to better service our clients”. Integrity Research tracks 3,738 active research firms in its database, and most likely there are half again as many providers we don’t track. Are Prime Executions’ clients clamoring for more research providers? Not likely. Prime Executions is following a long list of research firms like lemmings to the sea.
Not infrequently we get calls from analysts who are thinking about setting up their own boutiques asking for advice. Our advice: don’t. It is an extremely tough market, and the odds are stacked against success. Usually, however, they don’t follow our advice, convinced that they can make a go of it.
The handful of successful research boutiques, like Autonomous Research LLP, are siren calls to all the research wannabees. In its latest financials for the fiscal year ended March 2013, Autonomous Research’s revenues were up 19.7% over the previous year, at £21.4 million (US$34 million). Profit, net of £3.4 million (US$5.4 million) in bonuses, was £10.9 million (US$17 million). What’s not to like about Autonomous?
Autonomous continues to innovate in the way it runs its research business. Part of the increase in its revenues came from adding a three person credit trading team, which contributed 13% of revenues, a juicy £2.8 million (US$4.4 million) in incremental revenues. The credit traders are generating direct fixed income trading commissions, giving clients another way to pay for research through direct trading. Hats off to Autonomous for finding an effective new payment mechanism, adding another form of bundled trading since Lord Myners joined the firm as Chairman.
Autonomous’s new U.S. subsidiary, launched a year ago when Guy Moszkowski defected from BoA Merrill Lynch, is not as successful, adding only £.6 ($1 million) in revenues, suggesting how much tougher the market is in the U.S. In fairness, the results are not a full 12 months, since the U.S. operation wasn’t announced until June. Also, the contribution from the U.S. operation is likely a royalty payment with the bulk of U.S. revenues going to pay the U.S. staff.
Nearly half (47%) of Autonomous’ revenues are generated from commission sharing arrangements (CSA’s), direct equity trading represents 37% of revenues, while 13% comes from the new credit trading group and the U.S. operation is 3%. Direct equity trading has been very successful for Autonomous, at £7.9 million (US$12.6) up from £7.3 (US$11.7) the year before. How many brokers can point to increased equity commissions in this environment?
Contrast Autonomous with Prime Executions’ effort. Prime has hired 2 traders, a strategist who was previously at Bay Crest Partners and an energy analyst previously with Phoenix Partners. Not the top ranked analysts who started Autonomous. Nevertheless, optimism prevails: “The team will be a tremendous asset to our firm and will position us for future expansion,” says Andrew Silverman, President and CEO of Prime Executions, Inc. Good luck with that.