New York, NY – According to a press release issued yesterday afternoon, Medley Global Advisors (MGA), one of the leading providers of international policy research for hedge funds and asset managers, signed an agreement to offer its research exclusively to Goldman Sachs’ institutional clients via the firm’s Hudson Street Services platform.
In a separate agreement, Goldman Sachs made an investment in Medley and took a minority stake in the firm. As a result, Goldman is now a co-investor in MGA with Boston Ventures, Castanea Partners and Medley management.
Medley’s core business, launched in 1997, is providing analysis and reports on monetary and fiscal policy, as well as major geopolitical developments in G7 countries and various emerging nations, with a focus on how these developments might impact various financial assets and commodities markets.
MGA, like some of its primary competitors Eurasia Group and Washington Research Group, offers its clients insights into likely policies on interest rates, foreign exchange, and other key market policies.
MGA’s client base includes fixed-income and currency traders at major investment banks, portfolio managers and analysts at global asset managerment firms, and investment professionals at many of the world’s largest hedge funds. Based solely on the firm’s revenue and client base, MGA is ranked in the top 10% of all alternative research firms serving the institutional investor community.
Medley is the fifth addition to Goldman Sachs’ Hudson Street platform, and the sixth investment the firm has made in the independent research and tools business in the past nine months. It also must be noted that Goldman’s deal with Medley is a departure from its previous deals where GS chose to partner with investment tools, proprietary data, and industry research providers.
The Progress on Hudson Street
Last spring, Goldman Ventures acquired a majority interest in Wall Street on Demand (WSOD) — a firm that builds and supports investment websites and web-based financial applications. Since the initial investment, WSOD has been hired to build the Hudson Street Research XPRESS infrastructure.
However, Goldman really didn’t make much overt progress on Hudson Street until March, 2007 when the firm announced that it had reached deals with Asset4, Connotate Technologies, and Investars to include them in its Hudson Street offering (the firm also made minority investments in each of these firms).
Then, last month, iSuppli, a global leader in providing research and market intelligence in the technology sector, announced that Goldman Sachs has taken a minority interest in the firm and will include them in the Hudson Street platform.
Integrity’s Views on Goldman’s Efforts
Goldman’s Hudson Street platform is a clear move by the firm to take advantage of the sea change that has occurred in the financial markets and the research industry in the past few years. The FSA’s mandate for asset managers to provide commission disclosure to pension fund clients, the proliferation of CSAs in the UK and Europe, and the defacto unbundling which has resulted has dramatically altered the equity capital markets.
Consequently, we see Hudson Street Services as a significant effort by Goldman Sachs to grow their execution business by sourcing and proactively marketing unique and innovative research, analytic tools, and proprietary databases to their existing institutional clients, with the expectation that these customers will want to pay for these services by generating commissions through Goldman’s trading desk.
To accomplish the goal, Goldman decided it made most sense to them to make discrete bets on specific niche research, database, and tool providers, and to create exclusive relationships with these firms by making minority investments in each partner.
Of course, the team at Hudson Street probably had a tremendous amount of internal selling to do as many executives (and particularly the firm’s proprietary research department) would see an effort like Hudson Street as a direct threat to their businesses. As you might guess, the fear within Wall Street research departments is that buy-side clients might choose to purchase alternative research instead of the proprietary research produced by their in-house analysts.
In fact, this may be one of the reasons that the Hudson Street team decided to focus its initial efforts on doing deals with firms that don’t provide the same type of research that is offered by their internal research departments — fundamental company analysis. Instead, firms like Investars, Connotate, Asset4, and iSuppli produce complementary tools, data, and analysis.
The Medley deal, however, marks a major change for Goldman as some might argue that MGA’s analysis competes more directly with research produced by Goldman economists and analysts. Medley’s offering is differentiated from Goldman’s economic analysis in that it focuses primarily on the policy making of central banks and other market movers.
While differentiated, Medley is far closer to Goldman’s proprietary research than other alternative research firms on the platform. Of course, we might argue that offering multiple sources of the same type of research could make quite a bit of sense. In fact, this model has been employed quite profitably by firms like Coke, Nabisco, or Johnson & Johnson for years.
The Impact on the Industry
Shortly after Goldman’s initial announcement of the establishment of its Hudson Street platform, there was a flurry of activity from competing investment banks and brokerage firms trying to figure out what they should do to respond, and what type of business opportunity existed for them in the independent (alternative) research industry.
We believe that the Medley announcement is an important one as it reflects two business realities. First, Medley is one of the leaders in the burgeoning alternative research industry, whereas Goldman’s prior partners were smaller boutique providers. In addition, Goldman has shown its desire to aggressively expand its offering of exclusive research, database, and tool providers (where they will stop nobody knows).
Consequently, we think the major questions facing the rest of Wall Street, include:
1. Positioning: Other investment banks need to come to terms with the question of what business model makes the most sense to them. Do they want to source and market specific content providers to their clients — or do they want to position themselves as experts and solution providers on the alternative research, data, and tools industry for their customers, thereby deepening their relationship with their clients and encouraging them to spend more on new and innovative services?
2. Exclusivity: Goldman is establishing exclusivity with their research partners along with minority investments. Does this make sense to others, and if seeking exclusivity, how do they plan to achieve this?
3. Limited Choices: Given Goldman’s focus on establishing exclusive relationships with a number of firms, will they effectively limit the number of high quality partners left for other investment banks to do business with?
4. Time to Market: Goldman has been at this effort for quite some time. Other firms will be under an extreme time crunch to be able to release a competitive offering. Will these competitors be too late to gain market traction?
In sum, we see the strides made by Goldman Sachs’ Hudson Street Services’ platform, and the buzz that this has created on Wall Street and among the alternative research industry, as an important development in the financial services industry. We suspect that this will create a ripple effect that will produce unimagined consequences for many players in the space, and will insure that we all continue to “live in interesting times.”
We have included the full text of the Medley Press Release below
NEW YORK, May 8 /PRNewswire/ — Medley Global Advisors, LLC (MGA), the
leading independent provider of policy intelligence to hedge funds, asset managers, investment banks, and governments, is pleased to announce it has signed an agreement with Goldman, Sachs and Co.'s Hudson Street Services. (Logo: view here ) Under the agreement, Hudson Street Services, who will offer clients access to a select platform of unique content and tools, will be able to introduce MGA's services on an exclusive basis to Goldman Sachs' institutional clients looking to incorporate macro and regulatory policy intelligence into their trading and investment decisions. In a separate agreement, Goldman Sachs has also taken a minority investment stake in MGA, joining current owners Boston Ventures, Castanea Partners, and MGA management. MGA will continue to operate as a fully independent firm, generating its own proprietary research and servicing all clients directly, including referrals from Hudson Street. MGA's Chief Executive Officer, Sassan Ghahramani, commented on the agreements: "Investors who traditionally had been less focused on the impact of policy decisions on their markets are increasingly aware of and impacted by decisions made in Washington, Beijing or Riyadh. Hudson Street will help identify Goldman Sachs clients who may have different styles, time frames, and objectives than MGA's traditional clients. "We will help these clients cut through their information overload and provide them with decision-grade, educated predictions and analysis of major policy issues. In addition to macro economic policy, we anticipate strong demand for our emerging markets, energy, regulatory and China specific coverage. "We will, importantly," he added, "be doing this with a firm that shares our philosophy of providing premium quality service to a sophisticated client base." About MGA MGA analyzes primary sourced and public input from policymakers and applies it to industry and financial markets to help clients and policymakers anticipate key macro and regulatory events that affect them. MGA provides services covering select G7/OECD fixed income and currency markets, emerging markets, telecoms, utilities, and energy markets. It was founded in 1997 and is headquartered in New York City, with offices in Washington DC, London, and Tokyo. For more information on MGA, visit here. To contact the firm, please e-mail or call Launa Myrie at 212 219 9096.
Comment by Paul Rowady:
We have had several discussions with Hudson Street. It is clear to us that their mandate is a cross between near-term revenue and exclusivity. We would question whether there are alot of players that fit this algorithm, even though the affiliation with the Goldman brand is very compelling. This may suggest why we don’t see other major IB’s pursuing this model. Nevertheless, these developments are worth monitoring closely and do make for “interesting times”.