New York, NY – A few weeks ago, institutional trading firm Direct Access Partners, announced that it had developed an exclusive distribution relationship with specialist independent research firm, Merchant Forecast.
Merchant Forecast Joins Direct Access
Founded in 2002, New-York based independent research firm, Merchant Forecast (www.m4cast.com) has developed a team of 150 retailers in 85 malls around the country who provide primary data and insights, and complete weekly questionnaires on the activity in their mall stores.
Merchant Forecast’s experienced senior management team analyzes the results of these surveys and generates actionable ideas at the company and sector levels. Most of the retailers covered in Merchant Forecast’s coverage universe are surveyed at least on a monthly basis.
Dan Hess, the founder of Merchant Forecast, explains his rationale for the partnership, “The experience of the sales and trading teams at Direct Access provides an ideal fit for our clients. Our 11-year track record of adding value to investment decisions creates a win-win for us and the Direct Access client base.”
Background On Direct Access
Direct Access Partners, LLC is a diversified institutional financial services firm founded in 2002. It provides an institutional platform offering agency trading in global equities, global fixed income, listed derivatives, commission management, introduced prime services, capital introduction, capital raising, capital markets and alternative research.
Direct Access’s Alternative Research Group (ARG), started up in the fourth quarter of 2012, identifies unique, value-added independent research products and introduces them to buy-side analysts and portfolio managers. The team works on an exclusive basis with a small number of research firms handpicked through a rigorous selection process. They provide outsourced sales coverage for these research providers, and trading support through Direct Access Partners’ global execution platform to their buy-side clients.
“Merchant Forecast has become one of the leading resources for institutional investors in the retail space and we’re excited to be working with them,” said Mike Dolan, Managing Director of Direct Access’ ARG. “The backgrounds of these analysts – all former merchandising managers – combined with the firm’s proprietary field team and detailed, relevant monthly data, is what makes the research so valuable to investment managers,” he added.
ARG Tries to Recreate Past Success
The management at Direct Access’ ARG is not new to the independent research sales and marketing business, having built and run Instinet’s extremely successful independent research platform for many years.
While at Instinet, ARG’s management marketed a number of notable independent research firms including Alternative Energy Investing, Cross Industrial Research, Decision Economics, Favus Institutional Research, HMCG, IDC Tech Investor, Public Insight, Retail Intelligence Group, Ross Smith Energy Group, and Trusted Sources, to name a few.
The MD of ARG, Mike Dolan, brings more than 19 years of securities industry experience to Direct Access. Prior to joining Direct Access, Mike worked Instinet Corp for 10 years, where he helped create and launch the firm’s independent research platform in 2000. He then went on to run Trading Sales and Research Sales in North America and most recently became Co-president of Corporate Access. Previously, Mike held senior sales positions and Goldman Sachs and Neuberger Berman.
It’s clear to the team at Integrity that ARG has the right pedigree to make a go of its alternative research sales business. After all, Instinet is one of the most successful distributors of third-party research to buy-side investors. And while there were a number of reasons for this success, we would like to point out four (4) issues we think are important for any firm like Direct Access that is trying to replicate this success.
- Great trading capability: Instinet is seen by buy-side clients as a high quality trading venue, where they could pay for third-party research using client commissions – either in a bundled transaction, using soft dollars, or CSAs.
- Unique research products: Instinet has always made sure that the type of research providers they partner with offer extensive industry experience, coupled with primary research methodologies, and a unique research product for portfolio managers and analysts.
- Focused research sales and marketing efforts: Instinet’s independent research platform employ salespeople who understand the tremendous differences between selling independent research products versus sell-side research. Most other firms who have not been successful selling independent research have tried to repurpose sales traders or former sell-side research salespeople, with limited success.
- Strong demand for third-party research: Instinet’s glory days in selling third-party research to the buy-side were, not so coincidentally, the glory days for the independent research industry when equity commissions were growing and buy-side investors were aggressively seeking new sources of non-consensus ideas and inputs.
Based on the background of the team, we would assume that Direct Access’s ARG will be able to identify great research firms and put together a high quality research sales staff. Also, based on the feedback of some buy-side clients, we suspect that Direct Access has a respectable institutional quality trading platform.
The real question that remains is whether the market conditions are right to support growing demand for third-party research. On the one hand, global equity commissions have been shrinking over the past five years, and institutional investors have been paring back their spending on all external research providers. However, as we have mentioned in recent weeks, it looks like buy-side demand for some independent research services has started to pick up in the past few months for the first time in a few years.
We hope Direct Access’ ARG (and the other firm’s trying to build similar research distribution platforms) will be able to catch this wave early enough to be able to build successful businesses for themselves and their research partners. It will be interesting to see what transpires.