New York, NY – For the second time in two weeks, a major alternative research provider is rumored to be for sale. This time the subject firm is Prudential Equity Group — the institutional equity sales, trading, and research arm of Prudential Financial.
Based on an article published in this week’s Wall Street Letter, Pru management has been making calls to clients and potential buyers to discern what the firm might do to make it a more attractive purchase. Prudential currently employs 30 equity analysts and 20 sales traders.
While this week’s revelation may be surprising to some, the team here at Integrity Research has been predicting for some time that several mid-sized research broker-dealers would come under pressure as buy-side firms adopt CSAs and CCAs.
Historically, firms like Prudential Equity Group have been able to support their equity sales and trading business by offering their proprietary research on a bundled commission basis. However, unbundling developments that started in the UK have moved to the U.S. in recent months.
As a result, some clients are trying to pay firms like Prudential (that provide BOTH execution and research) significantly less than they did previously to obtain only their research.
In an effort to forestall this unbundling, we have heard that a handful of firms (including Prudential) have refused to receive checks from other CSA brokers. Unfortunately, such a move will be difficult to support unless a firm has extremely unique research. Consequently, we suspect that this will result in lower overall revenues for many of these research providers.
The big question is, “Who is going to feel comfortable purchasing Prudential Equity Group, despite the firm’s reputation for producing high quality equity research, in this challenging market environment?” That answer remains to be seen.