Meredith Whitney Shutters Research Biz and Opens Hedge Fund

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Last week, it was reported that well-known financial services analyst, Meredith Whitney, recently shuttered her independent research business and is preparing to launch a long/short hedge fund instead.  Ms. Whitney’s move reflects the difficult market environment that many independent research firms have faced in recent years as equity commissions have shrunk.


Whitney Closes Research Biz

Following a much trumpeted departure from Wall Street in 2009 to set up her own independent research boutique, well-known financial services analyst Meredith Whitney, decided last week to deregister her brokerage unit and shutter her research firm, Meredith Whitney Advisory Group (MWAG).

The closure of MWAG comes after Ms Whitney’s research firm steadily lost buy-side clients, dropping from 30 customers shortly after setting up shop to 14 at the beginning of this year.  Simultaneously, Whitney’s research staff dropped from 5 full-time analysts two years ago to one analyst this summer.  The remaining analyst, Angela Cantu, recently departed MWAG to join the Blackstone Group.

MWAG has not published research for clients since mid-September.  Ms. Whitney’s attorney explains that she will continue to do advisory work for clients, though Whitney does not plan to continue publishing research.

Ms. Whitney gained notoriety in 2007 after she made a prescient call that Citigroup would come under pressure and would have to cut its dividend.  Unfortunately, in December 2010 Ms. Whitney made a bold but inaccurate prediction that defaults at municipalities across the United States would total hundreds of billions of dollars.  Instead of collapsing, munis became a star performer of 2011.


Next Phase for Whitney

Despite closing her research business, Whitney has already moved on to the next phase of her career as she is preparing to launch a long/short hedge fund.  In April, Ms. Whitney registered Kenbelle Capital with the state of New York.  Kenbelle is an investment manager to a partnership based in Bermuda.

In July, in an interview with the Financial Times, Ms. Whitney explained that she had decided to start investing both her own and other people’s money in “the whole investment supercycles”.  Ms. Whitney is the managing principal/chief investment officer for the hedge fund which will be focused on U.S. equities.  Whitney is currently in the process of hiring staff and fundraising.

 

A Sign Of The Times

The closing of MWAG is not a shock as Whitney has faced the same headwinds that all independent research firms have struggled with over the past few years including a shrinking U.S. equity commission pool and increasing regulatory and criminal scrutiny into hedge fund activity.

In fact, many IRPs we have spoken with over the past six months say they have experienced either dramatic client cancellations or drastic revenue reductions from buy-side customers over the past few years due to the factors mentioned above.

The only surprise with Whitney’s decision is the timing of the move as many IRPs have told us that their business is actually picking up this year, reflecting a modest uptick in commission volume and increased buy-side comfort with their compliance due diligence process.


Summary

While the demise of MWAG is not surprising, it does mark the first casualty among the slew of research firms started by big-name former Wall Street analysts – a sign that no one is immune to the market forces which have beleaguered the research industry in recent years.

The only question we have is whether Meredith Whitney can make the transition from being a high profile sell-side / independent analyst to a successful hedge fund manager.  Given the turmoil seen in the financial markets in recent years, we wonder if the move is one where Whitney has merely jumped from the frying pan into the fire?  We will have to wait and see if she fares any better with her new business endeavor.  In the meantime, we wish her luck!

 

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