ThinkEquity Starts Web Log to Gather Ideas
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By JENNY ANDERSON
THE NEW YORK TIMES
February 17, 2005
BLOGGING transformed political commentary, rattled the media business and inundated the Internet. Does it have a place on Wall Street? ThinkEquity Partners, a boutique investment bank in San Francisco, will find out as it introduces a Web log today. The firm, which specializes in technology, health care and other fast-growing fields, is seeking to make its investment research department - an albatross at most Wall Street firms - relevant.
ThinkEquity is betting that the blog will attract analysts, bankers, investors, venture capitalists and anyone else interested in talking about growth investing, and in the process, help the company generate ideas. The firm's research is available to all and, once registered, anyone can post feedback on the site. The blog can be found at thinkequity.com.
ThinkEquity's co-founder, Michael T. Moe, who is the former director of global growth stock research at Merrill Lynch, compared the idea to the Zagat Survey of restaurants.
"There are all sorts of information sources about where a restaurant is located and what the cuisine is, but that's just information," he said. "What makes Zagat's powerful is you have 100,000 people contributing. Their insight is amazing, frightening and impressive."
Mr. Moe said he did not see an immediate way to make money from the blog, but viewed it as a way to generate ideas - the lifeblood of research and investment banking.
"Our mission is to identify and partner with the stars of tomorrow, today," he said.
He said he got the idea from Tony Perkins, a founder and former editor of Red Herring magazine who has started AlwaysOn, which is using blogs to discuss business and technology issues.
The blog format can transform research from a document into a discussion. "There can be more insight into decision making," said Anil Dash, a vice president at Six Apart, the company that makes the software ThinkEquity is using for its blog. "They can participate in the conversation."
General Motors recently began a blog for Robert A. Lutz, its vice chairman, so he could have a more nuanced conversation with people about the automotive industry.
For Wall Street, the blog promises both opportunity and potential regulatory challenges. "A blog is not a solution to all the problems facing Wall Street research," Mr. Moe said, "but we think it's a component of the future service offering that research can provide."
The problems Mr. Moe referred to are abundant. After years of promoting Internet and telecommunications stocks, many of which went bust when the technology bubble burst, Wall Street research came under tremendous scrutiny. In 2001, the New York attorney general began investigating conflicts of interest among Wall Street analysts, finding evidence that research was being written solely to win investment banking business. Nearly two years later, a group of Wall Street firms agreed to pay $1.4 billion to settle accusations that they lured investors to buy billions of dollars worth of shares in companies they knew were troubled.
Regulators offered a variety of solutions to these problems, like requiring that analysts certify their reports as their own thinking and altering how banks compensate analysts.
A result, however, has been that most firms have cut research, mainly because it is difficult to get investors to pay for it. (Investment banking previously subsidized it.)
"The research environment is in disarray," Mr. Moe said. Firms that sell research, like investment banks, "are trying to rationalize and come up with a model where they can make a research department make sense," he said.
Some people are skeptical of the blog approach. "The trend in research is to differentiate yourself, especially for a research boutique," said one Wall Street analyst who insisted on anonymity because of the regulatory issues about analysts' discussing their profession. "They will do what they can to make their voice be heard, but I don't know if I would expect it to catch on in the investment banking research world."
Richard X. Bove, a research analyst with Punk Ziegel & Company, called the idea "a bust."
"I don't know of any way to get really serious customers other than contacting them directly," he said.
Perhaps. But the world of information has changed, and getting distinctive insight has become significantly harder. Regulation FD, for fair disclosure, requires companies to disclose material information at once to all investors rather than a select few. That rule stripped analysts of a principal asset: access to management and, ideally, information that management would give to them first.
At the same time, regulators are in overdrive to find violations. In mid-January, NASD fined an analyst at Fulcrum Partners, a boutique institutional research firm, $75,000 for perpetuating a rumor.
Mr. Moe said his firm's compliance officer had vetted the blog and found it did not present any regulatory obstacles.
An official at the Securities and Exchange Commission, who insisted on not being identified, said that the blog did not appear to violate any rules but would probably require more disclosures.
The blog idea may take hold or may go bust, Mr. Moe acknowledged, but he is willing to try it.
"The blog doesn't replace an expert who can dissect a balance sheet and do rigorous financial analysis and can make a judgment on the value of a security, but it will absolutely be a powerful complement to that process," he said.
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