New York – Instinet LLC, one of the leading agency brokers, is expanding its alternative research services on two fronts. It plans to increase the number of exclusive marketing arrangements with alternative research providers, and it recently launched a platform designed to help newbie research boutiques get off the ground. Both steps reflect the growing interest in alternative research on both the buy-side and the sell-side.
Instinet Access provides exclusive sales and marketing support for a select group of research firms. Instinet was started the program in 2004 and, along with Capital Institutional Services (CAPIS), was one of the first firms to focus on distributing alternative research. In January, 2007 Goldman Sachs launched its Hudson Street platform which added a new twist–minority investments in the firms being distributed. Merrill Lynch followed in April 2008 with its Open Minds platform. UBS also entered the arena, first with a minority investment in Integrity Research in February, 2008 and then with an investment in GovernanceMetrics International in November 2008.
So it is fitting that one of the early leaders is upping the ante. Currently, Instinet Access has exclusives with five providers:
• Cross Industrial Research – Automotive & Industrial
• HMCG – Retail and Consumer Products
• IDC Tech Investor – Technology & Telecom
• Potomac Research Group – Legislative & Regulatory
• Ross Smith Energy Group – Oil and Gas E&P
All are high quality research providers–Potomac is apropos given the resurgent interest in Washington-oriented research; Ross Smith is one of the top energy boutiques.
We suspect the sweetest deal has been IDC, which is one of the top industry consultants in technology and telecom, with over 850 analysts. Instinet was one of the first to recognize the value of introducing industry consultants to institutional investors, a trend which has expanded greatly over the last couple of years. Most industry consulting firms sell primarily into the industries they follow and few have the resources to market their services to the buy-side, yet the appeal of their detailed industry knowledge to investors is large.
Instinet plans to double the relationships in its Access program to ten by year end and fifteen or so over the next couple of years. It is looking for providers in healthcare, financials, industrials and metals, and reportedly has a couple of deals in the works.
Access is Instinet’s high touch offering for alternative research providers. It also has a low touch offering, the Plazma CSA platform, which provides payments to approximately 300 research providers. Now there is a new medium touch offering. Instinet Platinum, launched this month, offers a variety of marketing and administrative tools for alternative providers. The tools include access to bigdough, a prospecting database, at a reduced cost; market analysis on target buy-side markets (including AUM, portfolio turnover, investment style); and outsourcing services for billing, collections, payroll, facilities management and taxes. The Platinum platform is designed to capitalize on the growing number of research boutiques being set up by sell-side analysts.
Instinet’s CSA platform has been a beneficiary of increased counter-party concerns in the wake of Lehman’s bankruptcy. Instinet is now building on that momentum with a re-invigorated set of alternative research offerings. One of the early adopters is clearly back in the game…