New York – Morbid curiosity draws us to review the list of defunct research firms we get each month from Amy Campbell, our director of database operations. The latest installment continues our themes of consolidation in fundamental research, and the ongoing appeal of the buy-side for equity analysts.
This month we have six firms newly listed as ‘inactive’, all with different specialties and business models.
- A-Brokers, an independent boutique based in Stockholm covering Nordic stocks, morphed into a hedge fund, Adrigo Asset Management AB, as of the beginning of the year. The principal, Håkan Filipson, and all the staff of Adrigo are ex-A-Brokers professionals. The performance track record looks good so far, so hopefully they will make the transition successfully.
- Breakaway Research, a Massachusetts-based technical analysis shop, is another firm putting money where its mouth was. The principal, David Lundgren, is now VP, Technical Analyst at Wellington Management.
- Another analyst transitioning to a related new career is the founder of Communications Equity Research, a telcom boutique which was part of Soleil Securities Group. As of September, the firm stopped coverage, as the principal, Gregory Lundgren, took a new role as Director of Investor Relations for Frontier Communications, a publicly-traded telecommunications firm.
- A less happy fate befell the founder of Sky Capital LLC, a securities firm specializing in small caps. CEO Ross Mandell and five other employees were charged by the S.E.C. with operating a “fraudulent boiler room scheme” in the U.S. and U.K.
- Barrow Street Research, a paid-for research firm specializing in small cap stocks, filed for dissolution in April. In 1998, Barrow Street was charged by the S.E.C. with violating Section 17(b) of the Securities Act by not disclosing that its research was being paid for by the issuers covered. [i]
- Flagstone Securities, a boutique investment bank focused on mortgage finance and REITs, was shuttered (no allegations of wrong doing involved!).
Five of the six firms were fundamental firms, supporting our thesis that there is an oversupply of fundamental research. However, the number of firms in our database continues to grow. In the past month, the number of active firms (those where we have full information and believe to be still in business) grew by twenty-three, net of the six defunct firms.
The new additions were mostly not fundamental firms. Industry consulting firms, expert networks, survey firms, and specialized firms such as corporate governance and deception training firms, represented the bulk of the additions.
Despite attrition, the long tail continues to grow longer and more diverse…
[i] Barrow Street was not alone; the SEC brought 23 enforcement actions in October 1998 against 44 individuals and companies as part of its sweep. Section 17(b) of the 1934 Securities Act makes it illegal to distribute a publication recommending a security without fully disclosing the nature, terms and amounts of compensation received or to be received in connection with the distribution of the publication.