New York – This morning, Gerson Lehrman Group, the world’s largest provider of expert network services, announced that it was changing its long standing policy of not providing sell-side equity analysts with access to its database of experts by signing a multi- year agreement with Credit Suisse.
The deal is reciprocal in nature as Credit Suisse gets nonexclusive access to the GLG network for its analysts, while Credit Suisse will market GLG’s services to their clients in the emerging markets (particulalry Latin America). In addition Credit Suisse will offer some of their analysts as a part of the the GLG network to non-buy-side clients.
What’s in it for Gerson?
One benefit to Gerson is Credit Suisse’s distribution of its services in markets where the firm does not have a large marketshare and where Credit Suisse has a strong market position with institutional clients. This is particularly, helpful to Gerson in Latin America and other emerging markets.Probably the most meaningful benefit to GLG is the “network effect” of adding a large global client like Credit Suisse. GLG sees themselves as the largest marketplace in the world for expertise. This means that the firm needs to continually attract top notch experts to attract demanding clients and visa versa. Adding a client like Credit Suisse (and the possibility of other large sell-side investment banks) makes the Gerson platform increasingly more interesting to experts, professional servies providers, academics, and industry consultants.
What’s in it for Credit Suisse?
From the perspective of Credit Suisse, the deal makes solid sense as it enables the firm to add considerable value and insight to their core research product. Credit Suisse analysts will be able to geometrically expand their own rolodexes once they have access to the GLG network. In addition, access to the GLG network will enable Credit Suisse analysts to conduct more primary research more quickly.
While this was not a part of the deal, it makes us wonder if access to Gerson will enable Credit Suisse to provide more insightful research, even with less senior analysts (on average). In recent years the buy-side has complained that sell-side research has declined in quality as sell-side firms have replaced senior experienced analysts with more junior staff. The addition of Gerson to the analysts’ toolbox could help to offset this trend.
In addition, a limited number of Credit Suisse analysts will be made available via the GLG network, but only to non by-side clients (corporates, consultants, etc.) and only on an macro industry level of detail. Investment advice will not be provided. This protects the proprietary research that Credit Suisse offers to their high-end institutional clients.
All of the value-added available to Credit Suisse analysts from the GLG network will flow through to the institutional clients in the form of enhanced competitive insights, more informed supply-chain analysis, and greater access to panels and market research.
Net Net
One of Gerson’s long-standing value propositions to the hedge fund community is that they did not provide their services to sell side analysts. The deal with Credit Suisse officially changes this practice. Unofficially, we heard last year that GLG had entered into a modest arrangement with another sell side institution. For the hedge funds, this change could dilute the informational alpha of the Gerson network — a development that could cause small and mid-sized hedge funds to defect to other expert network providers. Indeed, we fully expect that the other 25 expert network providers will use Gerson’s policy reversal to their advantage in marketing their own products.
Obviously Credit Suisse and GLG have been crafting this deal carefully over a number of months. In the broadest terms the deal gives GLG access to Credit Suisse clients — particularly in emerging markets — and gives Credit Suisse access to a strong source of primary research for its analytical team. A fair trade on the surface, until one thinks about a the potential hedge fund backlash that may take place when they learn that Gerson has changed its initial practice of not offering its services to sell side analysts. Of course, on his front, the jury remains out.