The world sees things in black and white these days. Great issues are handled in a fractious and partisan manner. An example can be seen in the US approach to terrorism (either you are with us or against us). Another can be seen in the actions of protesters against globalization. Shades of gray are a thing of the past.
One of the more pernicious issues that has recently emerged is in the debate over equity research and an assumption that analysts are little more than cheerleaders for their investment banking teams. Popular perception has it that they lie, cheat and deceive to make millions of unearned dollars by bilking unwary investors. Few commentators have anything positive to say about researchers any more.
The truth, apparently, has been lost somewhere along the road of hyperbole and political ambition. In the process, there seems to be little evidence that the world of research is going to be in any way reformed. The Spitzer settlement that the New York State Attorney General agreed with Merrill Lynch would seem to be the worst possible outcome. The underlying conflicts Spitzer bemoans have not been removed. And Merrill and other investment banks still face class action lawsuits, which could ruin them. By tinkering around the edges of this issue for short term political gain and failing to address what is actually wrong with the whole model, Spitzer and the banks have done the financial community a great disservice.
This issue is about more than the relationship between analysts and their investment banking bosses. It is about how institutional investors pay for the services they receive from banks. It is about the farcical relationship between companies and their bankers. It is about the relationship between companies and their shareholders. It is, in sum, about the workings of the modern equity system.
While most of the debate on this subject is originating from Wall Street and the various regulatory bodies of the US and now Europe, there will be ramifications in Asia. Impositions slapped on the likes of Merrill Lynch by ill-informed New York politicians will eventually be replicated the world over. The industry will definitely change although no one, as yet, knows what will eventually evolve. It will be fascinating to see how it evolves. But in the debate that leads to change, Asian voices need to be heard.
Today we are launching our Forum on Asian Investment Research, known by the appropriate acronym of F.A.I.R. Through our website, our e-mail newsletters and our magazine we will be launching a series of interviews, articles and reviews on the state of equity research in Asia. We start from an initial premise that what is wrong is not equity research per se, but rather the model that has evolved in which research becomes tainted.
We are launching a series of discussion boards on our website where our readers, the participants in Asia's markets, can have their say on this debate. We welcome your observations on what is wrong and what is right with equity research. We also would encourage anyone with any ideas on how to improve the situation to also make their voices heard. The discussion board will be anonymous but closely monitored.
We will be keeping our readers up to date with all the latest news from New York, Washington, London and Brussels. We will also be inviting regulators and members of industry bodies to contribute their thoughts to the process and will be interviewing key decision makers in the coming weeks.
We will be canvassing opinions from investors who use research and corporate executives who supply the guidance, so that they can get their views across. Arguably it is these sectors of the market that hold the real keys to reform.
We will also highlight what is good about equity research in Asia and review what we believe are excellent individual pieces of research. The process will culminate in an extensive report on the state of Asian equity research to be published in the July edition of FinanceAsia magazine. We encourage your participation and hope to put some balance back into this important debate.
The message boards are ready for your participation at: