Soleil Adds New Indie Research Providers

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 New York, NY – Last week, Soleil Securities Corporation, a New-York based provider of third-party equity research and execution services, announced that it has added two new research providers to the firm’s platform, including Nikolay Tishchenko and his research firm, Analytical Investments, and Christina Woo and her research firm, StreetScape Research.  A few weeks earlier, Soleil added A.J.Rice and Chris Rigg of Pomeroy Research, LLC to the platform.

New Providers

Mr. Tishchenko has been covering the semiconductor industry for over 10 years. Prior to forming Analytical Investments in 2008, he held senior research analyst positions at Global Crown Capital, Fulcrum Global Partners and ABN Amro. Before becoming an equity research analyst, Mr. Tishchenko worked as a physicist at the Physics and Space Technology Division of Lawrence Livermore National Laboratory.

Ms. Woo covers Consumer services and Leisure.  Prior to founding StreetScape Research, Ms. Woo was a Vice President at Morgan Stanley, covering car rental, equipment rental, and small cap staffing companies. She previously worked as an Associate for Banc of America Securities on the gaming and lodging and business services teams. Before starting her equity research career, Ms. Woo was a product manager for a software start-up and a strategy consultant at The Boston Consulting Group and Bain & Company, Inc.

Mr. Rice and Mr. Rigg cover the healthcare services and facilities sector. Prior to founding Pomeroy in 2006, Mr. Rice was recognized for over 10 years as a top sell-side analyst by Greenwich Associates and Institutional Investor Magazine.  His 20-year Wall Street career began in 1987 in the mergers & acquisitions department of J.P. Morgan. He was appointed Senior Health Services and Medical Products Analyst when J.P. Morgan in 1991. In 1995, Mr. Rice left J.P. Morgan to join CS First Boston as the Senior Health Services, Managed Care and Medical Products Analyst. From 1996 to 1999, he worked at The Bear Stearns Companies as a Senior Managing Director and Senior Health Services Analyst. From 1999-2006, Mr. Rice was a Managing Director at Merrill Lynch, leading a four-person health services equity research team.

The Soleil Platform

The addition of Analytical Investments and StreetScape Research brings the total number of indie research providers on the Soleil platform to 21 firms, comprised of 25 research analysts who cover in excess of 280 stocks.  The analysts on the Soleil platform are quite experienced, with an average of over 16 years of expertise per analyst.  In addition, Soleil supports these analysts by actively marketing and selling their research to buy-side clients by leveraging their team of 23 research salespeople and 8 traders.

Since the firm’s founding in 2003, Soleil Securities has gained considerable traction, both as a provider of high quality research, and as broker providing good execution services.  More recently, Soleil has added a suite of services to its platform, including investment banking and access to company management via non-deal roadshows.

Recent Changes at Soleil

Despite these gains, Soleil Securities has experienced significant turmoil within its ranks in recent months as the entire senior management team has turned over, including a new President, Chief Operating Officer, Head of Institutional Sales, and Chief Investment Officer.  And while change is a constant in life (particularly in the financial services industry), it is a little strange that the Board of Directors saw fit to make such wholesale management changes.

From our perspective, it suggests that the Board was unhappy with the progress of the company under the previous regime.   Certainly, given the tens of millions of dollars raised by Soleil over the years from various venture capital and private equity partners, we would not be surprised if Soleil’s investors were growing impatient that the business might not bring the returns initially promised by management.

Viability of the Soleil Model?

Another question that one might ask about Soleil is “How viable is their business model, particularly given all the significant changes seen in the business over the past twelve months?The first issue we see with the Soleil business model is the tension that must exist for management between owning the research content and marketing independent research.  It is clear that Soleil would become a more valuable entity for its investors if it created and marketed its own proprietary research.  However, this would be quite expensive and it would obviously conflict with the business interests of the 21 independent research providers Soleil is currently working with.

Another issue we see with the Soleil model is the proliferation of CSAs and CCAs.  In our minds this would reduce the value associated with Soleil providing a trading desk as research providers should be able to get paid by any buy-side client by directing equity commissions through a CSA / CCA relationship with any existing execution provider.  Associated with this issue is whether CSAs / CCAs have reduced the amount of commissions that buy-side clients have been willing to direct to Soleil – a factor that would make the existing trading desk based model difficult to sustain.

Investors may be wondering whether they should be doing business with Soleil given the higher counterparty risk associated with executing trades and paying for research with a small boutique provider like Soleil.   The good news about Soleil is the fact that the firm is an agency broker.  However, they are a small provider without the kind of balance sheet that might buffer them in tough economic environments.

The final issue that Soleil must face is one that most boutique research providers (and some larger regional brokers) must come to terms with in the next year or so.  As we have mentioned before, the research marketplace is likely to be extremely difficult in 2009 with 30% to 50% of all hedge funds closing their doors, and with buy-side equity commissions projected to fall by as much as 40% in the coming year.  Consequently, the revenues of a firm like Soleil could be hit quite hard as the number of buy-side clients drops and the commission budgets remaining at these firms gets considerably tighter.

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2 Comments

  1. Ronit Bhattacharyya on

    Couldn’t the smaller balance sheet at a firm like Soleil imply lower counterparty risk, insofar as their leverage ratio is likely to be much lower?

  2. To: Mike Mayhew

    Since you’re going to write about us (Soleil) its important that you get the facts correct. For starters, we currently partner with 30 research analysts and employ 30 research salespeople and 11 sales and execution traders. Those numbers will continue to climb as we execute on our growth strategy. Additionally, there are some assertions you make that we believe are unsubstantiated

    Regarding the new management team, you are incorrect to suggest that there has been significant turmoil and turnover. The former COO became President in May and the firm back-filled the COO position. The new Head of Sales and new CIO replaced no one. They are new positions. Again, all part of a growth strategy. The firm has seen only two voluntary departures during the last six months and has added eight new employees during the same period. I wouldn’t classify that as “turmoil”. The Board of Directors and existing shareholders continue to be very supportive of the firm, its management team, and Soleil’s vision. The firm’s balance sheet is very solid, affording the management team considerable flexibility.

    Your comments suggest that the Soleil business model is questionable, particularly in this difficult market environment. We think you are 180 degrees off point. In fact, it is Soleil’s flexible business model that gives the firm great staying power in difficult markets and tremendous leverage in good markets. If you are questioning the viability of the Soleil model then you must be questioning the viability of the considerably less flexible, traditional cash equities models. You also suggest that the Soleil franchise would be “more valuable” if the analysts were employees. We disgree with this assertion. The assets of any agency platform are it’s people. Analysts can leave franchises at will, regardless of employment/contractor status. Franchise value is not determined by the tax status of the particpants. It is determined by the inherent leverage in the business model, the capacity to grow, and the attractiveness (to clients) of the firm’s offering. We believe Soleil represents an attractive value on all three fronts.

    You also bring up the issue of counterparty risk. Interestingly, Soleil has been experiencing an increase in the number of accounts exploring trading relationships with our firm. The demise of several large investment banks (low-risk counter-parties?) has convinced many of our clients that they need to have more trading partners, rather than fewer, in order to diversify their counterparty risk. For those clients, Soleil is a natural fit.

    One area where we actually agree is the market environment. You bet, it is difficult. The institutional client is struggling and that is bad news for sell siders and vendors who service those clients. No one knows where the bottom lies but its probably fair to say that 2009 will be a difficult year for the industry.

    Terry Gardner
    President, Soleil Securities

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