New York, NY – Earlier this month, Craig Moffett, a former top ranked telecommunications analyst at Sanford C. Bernstein, announced the opening of his own independent equity research firm, Moffett Research, LLC. Three of his Bernstein colleagues will join Moffett as partners.
Background
Craig Moffett, left Sanford C. Bernstein, in January of this year after more than 10 years at the firm. Moffett had been ranked No. 1 among U.S. cable and satellite analysts for seven consecutive years by Institutional Investor magazine. Prior to working for Bernstein, Moffett served as president of Sothebys.com, and previously he spent 11 years at the Boston Consulting Group, where he led the firm’s global telecommunications practice.
Former Bernstein colleagues Patrick O’Connell, Ethan Steinberg and John Towers, have joined Moffett as partners in the new independent research firm. David Cielusniak, an attorney, formerly at New York-based Conquest Capital Group, LLC will also join the firm as a partner and will serve as general counsel, chief compliance officer and chief operating officer.
Moffett Research is planning to initiate coverage in the cable and satellite sector in June, before the National Cable and Telecommunication Association’s annual conference starts on June 10th. The firm expects to add other coverage areas, including telecommunications, later that month.
In Good Company
Moffett is just the latest in a string of star Wall Street analysts over the past decade who decided to leave prominent sell-side investment banks in order to set up their own independent research firms.
Over the past few years, some of the highly ranked sell-side analysts who have successfully made the switch to offering independent research include Michelle Applebaum, Dana Telsey, Ed Wolfe, Ivy Zelman, Bill Pecoriello, Stuart Graham, Meredith Whitney, Jeffrey Sprague, and Jeff DeGraaf.
And while each of these firms have been able to attract healthy demand from the buy side, most of these analysts will admit that it was more difficult than they originally expected to get customers to pay them what they felt their research was worth.
Difficult Market Environment
One of the major reasons for this is the fact that the market environment for research in general has been extremely difficult in the past few years. Part of this has been a result of sharp drop in equity commissions over the past 5 or 6 years. Many Wall Street veterans say that the equity commission pool has fallen 30% to 50% since the peak in 2007.
Another reason the market environment has been so challenging for independent research firms has been the fear that unregulated independent research firms might pass along MNPI or confidential company information to buy-side clients. Consequently many asset managers stopped adding new independent research firms in the past few years until this concern was addressed.
This fear has prompted many buy-side firms to design and implement extensive compliance due diligence procedures to ensure that their third-party research firms have the compliance infrastructure in place to protect them from risky information.
Turnaround in the Offing?
However, a number of asset managers have started adding new independent research providers over the past four or five months. This trend has been consistent with a turnaround in equity commission volume, and reduced anxiety about the compliance issues associated with third-party research as firms have implemented their own controls.
This may also explain why analysts like Nancy Lazar (formerly of ISI), Dane Mott (formerly of JP Morgan), and now Craig Moffett have all decided to start new independent research firms since the turn of the New Year.
The real question is whether this trend will continue into the second half of 2013. Certainly, a large number of independent research firms are hoping this turnaround is the start of a prolonged uptrend, including Craig Moffett and his team at Moffett Research. We will just have to wait and see.