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Wall Street – Stuck in the Middle

Here’s a snippet of a conversation I recently had with a private fund manager. We were discussing the decreasing role Wall St. firms play in providing unique investment insights to their clients.

Andrew: What does it mean for Wall St. as their middleman position is eroded? They no longer control the information flow, and the little they do have on money flows shouldn’t be but probably is utilized.

Anonymous: I think you are already seeing it in a few ways. The pairing of research with trading capability is rapidly coming unwound to the point where people like fido (Fidelity) are paying separately for it. Execution has become a commodity with very low prices and research is getting priced much closer to its true value.

Another response is that the street has started to try to control face to face access to management teams. Increasingly, small companies with limited research coverage that come through NYC will let a broker book all their appointments for them, and won’t meet with you independently, thus forcing you to have a trading relationship with the broker in question. It is really dumb, but I’ve seen a lot of that in the last few years.

You’ve also seen all the intellectual horsepower on the street move to the buy side in the last 5-10 years. Part of the success of activist hedge funds is due to the fact that it is easy for them to find each other now and broadcast a different message from management’s tune. There are no effective chokepoints for information anymore, and the sellside is just one more voice out there and one that generally has very low credibility.

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