Mutual Fund Managers: Lost in the Hedges?

You might think that someone who decides where to invest billions of dollars could bend an equity analyst’s ear with no problem. But as Bloomberg News tells it, some mutual fund managers are getting snubbed by stock researchers at investment banks because “securities firms now order analysts to ignore everyone but the customers who pay the biggest fees.” Who are these big-spending customers? Those would be hedge funds, lightly regulated investment pools that use an array of trading strategies to earn profits for their customers.
Bloomberg describes a litany of woes: Mutual fund managers having to stay late at work because some analysts will talk to them only after hours; mutual fund managers being put on hold so an analyst can take a call from a hedgie; etc.
It needs to be this way, some Wall Streeters told Bloomberg, because research departments, since a set of new regulations were implemented following the turn-of-the century scandals, have been forced to rely more on sales and trading for their funding. There are fewer analysts, and they are writing shorter reports and have been forced to whittle their customer bases. That tends to favor the biggest clients.
James Wicklund three weeks ago left his job at Bank of America. “Half the people I talked to don’t care what companies do, they’re wondering, ‘Will I make money if I buy or sell this stock?”’ he said. “The shorter time frame of such investors and their disdain for depth caused research reports to lose most of their value.'’
Mutual fund managers are left without a crucial perspective as they try to make investments for the longer term. While bigger funds like those at Fidelity Investments still get access to analysts, many smaller ones are left out in the cold. Eventually, says one observer, those smaller firms will either get gobbled up, go out of business or become hedge funds.'’
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