Adrian Faure reveals his hand

ING''s new research head explains why there is a photo of Eliot Spitzer on his mantelpiece.

Adrian Faure is ING's new head of Asia research, a position he took on at the beginning of the summer. Faure is an old timer in the jungle of Asian research, having first worked in Hong Kong with James Capel in the mid 1980s. He then moved to Barings in 1989 and then Merrill Lynch in 1994 where he became the head of Hong Kong and China research. He was transferred to New York in 2000 to run Latin American research and take on the role of co-head of global emerging markets. He returned to Asia and ING this summer with a remit to shake things up.

Why did you decide to come back to Asia and to ING?

Faure: I've come back because the structural changes are leaving the big global firms in a very difficult situation. There is far too much capacity in the research market and everyone is trying to do the same thing. This situation has been predicated on very strong global equity flows and a robust M&A market. Globally this has supported Asia, which in many cases has been a loss leader. But guess what? That's gone. The strategy among all the firms is basically the same. And that means that there is too little a pie and too many people trying to grab it.

In my view, most of these banks don?t have the right structures and the right business model for their research departments. The buyside does not get what it wants or needs from them. When I pick up a copy of research from one of the big eight firms, it all looks, feels and tastes the same. I cannot really distinguish between them. And as the legal and compliance restrictions get even tighter, the editorial readability of those products becomes even more painful.

So how can ING be different?

We have an opportunity to dominate the middle ground and take a big tilt at the leaders if we get the right people on board. We have our disadvantages and our advantages. We are not a global investment bank; we do not have a US capability.

However there is an advantage in not having the US presence. When you work for a US bank you have to take their numbers and their feeds - their global oil price predictions or US interest rate assumptions for example- and you have to put that into your model. You cannot deviate away from that. You have to take that feed if you like it or not, even if it runs counter to the Asian perspective. So many clients see that we have added flexibility in how we cover things.

ING does not need to take these assumptions. We also have an independent voice. People question if the US firms are saying what they really think or just saying what they are allowed to say. ING has that independence and we will be leveraging it a lot more.

Finally I think we should learn a few things from what made Baring Securities so successful a decade ago. In my mind our success came from a very commercial and single-minded focus on seeking money-making ideas for our institutional investor client base - wherever we could find them. That was it - a very simple philosophy combined with a team of highly driven analysts that thrived on working in a high octane environment. And you know what else? It was fun.

Now let?s see if we can?t recapture some of that spirit here at ING. We need to clearly identify those battles which we really want to fight, give our analysts a huge amount of rope with which to run and constantly question conventional wisdom. Then when we?re ready to make the call to ensure that we absolutely own that space in every possible way. In so doing we will be heard when it matters most.

Most investors will say that they get most value from analysts in face-to-face meetings or on telephone calls. Investors I speak to say that most written reports go straight into the bin. In that case, those banks that are perceived to have the strongest corporate finance ties have better access to management and so the analysts have a better feel for what is going on in the companies they cover. How do you feel about that?

I agree that there is no better way for an analyst to own their space than if they are the one doing the deals. You have the access and the market certainly has the perception that you have the inside track. And to some extent that's certainly true. But then you are getting into the very treacherous world of conflicts that we are reading about everyday in the papers. Where does that conflict of interest come down?

ING is set up so that does not happen. It has always been a secondary market-driven house with a primary business built on strong relationships and potent distribution.

So are the investors and the companies the real villains in this and if so will anything be done to tackle their role in the present fiasco?

That will come. It is hard to tackle it. But sometimes when a company cuts you off for putting out a negative piece, then the market actually thinks more of you. Certainly I am going to be very supportive of ING research having negative opinions as long as the investment case is sound and well-articulated. What?s more, in my experience most companies understand this today. Where we find the problems is when an analyst launches a personal attack on management. You will not find that from us here at ING.

So is ING directly benefiting from what is happening to the US firms' research departments? Are you increasing your share of investor votes and of the brokerage revenues?

This is our opportunity. I would not have come here if ING was top of the tree and everything was humming. So in theory this is our great opportunity. But have we grabbed this opportunity fully yet? No?but give me a chance as I have only been here a month.

Having said that, our brokerage market share has risen in every market in Asia this year bar Taiwan. There are a lot of very exciting things we can be doing here, but it is all in the delivery, in the execution. Over the last few months, a number of high quality and experienced professionals have joined the ING team and we are now engaged in conversations with several more. People are beginning to realise that ING today has a real story to tell.

The framework and foundation was laid a year ago. We adjusted the business model to suit the market and profitability has been restored pretty dramatically. Very few firms can even think of saying that they are profitable in Asia. And in the future, very few banks will be able to rely on the subsidy that head office provided Asia.

Will research ever be able to pay for itself in your view?

Not directly, no. I thought pretty hard about what I wanted to do after I left Merrill. Given the regulatory scrutiny, I thought this could have been the time to assemble a group of smart but disenfranchised people and set up an independent boutique. But the reality is very tough. Getting people to pay for research will be very difficult.

So how is the market now different?

The market to a certain extent has come full circle and it is the houses that can provide local, on the ground ideas that are doing well. Don?t get me wrong, I am a big believer in globalization. But it is true to say that while portfolio managers think globally I firmly believe that ultimately they invest locally. So you have to provide that local knowledge for them which we are clearly in a position to do. Unlike many firms over the last few years, ING has maintained a local research and trading presence in all of the smaller markets in Asia. But we need to do a better job of leveraging that along with our European, Emerging Markets and Japanese research capabilities.

Would you say that people are realizing that Asia is perhaps the only major region where country is more important than sector, when it comes to investment parameters?

That is true of all emerging markets. It is the local economics, politics, risk factors, and interest rate environments that predominantly determine returns. Understanding what is going on, on the ground, therefore is key to making the right calls.

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