Turmoil in Europe’s equity markets in the wake of last summer’s U.S.-led subprime mortgage meltdown has not reduced the demand for buy-side analysts, but it has increased the supply of candidates, as more and more researchers contemplate leaving the sell side. “The perception is that, with everything that’s going on, the buy side is a more stable place to be,” says Amanda Foster, a recruiter in the London office of executive search firm Russell Reynolds Associates. Foster says that since last summer she has seen an upsurge in the number of sell-side analysts seeking buy-side positions.
Those opportunities abound. “There are still a number of U.S. hedge funds that do not have a European presence and are looking to establish one,” says Victoria True, a recruiter with Armstrong (International), a London-based placement firm. In addition, she says, many buy-side firms are rapidly expanding into the Middle East and are looking for analysts willing to relocate. “There’s a lot of good talent out there — it’s very competitive,” she says, and someone who has broad buy-side experience will have the edge.
Robert Donald, an analyst with hedge fund manager GLG Partners in London, says his firm is “seeing more people from the sell side looking for opportunities.” He attributes this to growing frustration over “all the varying demands — compliance, maintenance research, investor surveys, internal sales surveys — and then they’ve got to find the time to call their customer base and meet with their companies on a regular basis. There are more and more layers of responsibility and demands on their time.”
Donald knows whereof he speaks. He left Citigroup in 2002 to become one of a handful of former sell-side analysts at GLG Partners and has since witnessed a cultural transformation; today 35 to 40 percent of the firm’s sector specialists came from the sell side. “The buy side has become more open to absorbing and including people from the sell side — if they have strong, proven skill sets,” he says.
Analysts with stellar skills also are contenders for Europe Best of the Buy Side, Institutional Investor’s annual survey of the top researchers at money management firms, as determined by their sell-side counterparts. This year’s results reflect the opinions of more than 500 analysts at nearly 160 firms, including those who received votes for our 2008 All-Europe and Emerging Europe, Middle East & Africa research teams. Participants were asked to name the top buy-side performers in the sectors they cover; those cited most frequently can be found in the list on page 148.
Donald, a Building & Construction and Capital Goods analyst who is making his third appearance in the Best of the Buy Side, says “there has been a noticeable outflow of sell-side analysts” in the sectors he covers, and their absence is felt. “The sell side plays a very important role in setting the agenda in the market as to what matters on certain stocks, and that can’t be underestimated,” he says.
“There are a number of glaring vacancies at the moment,” agrees Peter Lawrence of JPMorgan Asset Management, a Capital Goods analyst in London who is making his first appearance in the survey. “Although we do our own research models and come to our own conclusions, we do listen to the sell side and track their estimates very closely.”
Why do analysts switch sides? It’s not for the money; buy-side analysts earn, on average, nearly 30 percent less than their sell-side counterparts (see the box on page 148). But there are other rewards, according to Paris-based Insurance analyst Esther Dijkman, who switched sides within Société Générale in 2006 and debuts in this year’s survey. “The buy side requires a broader view, which I believe is more interesting,” says Dijkman, who covered banks in the Benelux region and now tracks insurance companies and property developers across Europe for Société Générale Asset Management. “I have a larger number of stocks to look at, and access to company managements is better on the buy side. Ideally, the fund manager is following your ideas, so you see the results of your recommendations more directly.”
Robin Asquith of JPMorgan Asset Management in London, named the best in both Beverages and Food Producers for the fifth time in the past six years, agrees that the opportunity “to explore new names” is a buy-side benefit. Over the past two years, Asquith has expanded his direct coverage from 30 companies to 40 and has developed a “robust process” to systematically monitor a further 50 lesser-known names, such as Agrana Beteiligungs, an Austria-based manufacturer of sugar and starch, and Hiestand Holding, a Swiss manufacturer and distributor of baked goods. “Some of those companies have really moved,” Asquith says. “It makes life more interesting.”
Francine Lenoir
Crédit Agricole Asset Management
Aerospace & Defense, Capital Goods
Francine Lenoir traded in her post as a sell-side analyst for a job as a buy-side researcher with Paris-based Crédit Agricole Asset Management in 2000, attracted by the prospect of having more time to delve into fundamental company analyses. Today her counterparts on the sell side praise her aptitude at doing just that.
“Francine is very keen to dig into the companies she invests in, and she is very quick at identifying the real issues,” says one sell-side analyst. “She also has a lot of experience in the Capital Goods and Aerospace & Defense sectors, and this gives her the ability to put things into a historical perspective.”
Lenoir, 49, began her career in 1985 as an autos analyst with Société Générale in Paris, then switched to covering Capital Goods in 1990. Over the following ten years, she found she had less and less time to research the companies she was covering, so she decided to move.
“The life of a sell-side analyst changed toward more marketing,” says Lenoir. “Buy-side analysts have more time to work on their ideas.”
Lenoir, who appears in Europe Best of the Buy Side for a second time, tracks 20 stocks in the two sectors. Although she will not disclose the names of companies she recommends, she acknowledges that, given the world economy’s current volatility, she prefers companies within the Capital Goods sector that have greater potential for long-term success, such as those related to infrastructure development and power generation, over those that look to profit in the short term.
In Aerospace & Defense “my view is to avoid companies that are too dependent on macroeconomic situations and have dollar exposure, such as companies belonging to the civil aerospace sector,” Lenoir says. “We prefer defense stocks, which by definition are not linked to the economic cycle.”
Backers say Lenoir expresses her views enthusiastically and stands her ground. “Francine will tell you if she does not agree with you on a certain idea or argument, which makes a dialogue with her especially interesting — but also more challenging,”says one bulge-bracket analyst. — Katie Gilbert
Asif Jeevanjee
JPMorgan Asset Management
Business & Employment Services, Transport
Talk about stability: Immediately after graduating from the London School of Economics in 1998, Asif Jeevanjee joined JPMorgan Asset Management as an analyst covering the Business & Employment Services and Transport sectors. The Hampshire, England, native has held the same position ever since and doesn’t plan on changing jobs anytime soon.
“JPMorgan’s career-analyst approach allows us to form real relationships with the companies we cover,” says Jeevanjee, in his first appearance on Europe Best of the Buy Side. “We often follow a company through a full economic cycle, which lets us really get to know how the business works. Then it’s easy to form a long-term view.”
The 31-year-old analyst currently follows about 80 companies. Although he will not disclose specific names, Jeevanjee says that in the fall of 2006, he began to focus on shipping companies, particularly those that transport commodities such as coal and grain, primarily because of China’s growing strength as an importer of raw materials and an exporter of consumer goods. He also is looking at more small-capitalization issues.
“We prefer companies with strong balance sheets to those with weak ones, because financial leverage can be helpful when they are growing their business — it leads to faster earnings growth,” he explains. “Companies with lots of debt have less flexibility in a tougher operating environment.
It will be harder for them to refinance, raise capital, buy back shares, perform acquisitions or raise dividends.” The emphasis on balance sheets will only intensify as the full effects of the U.S.-led subprime mortgage crisis and liquidity crunch become known, he adds.
Colleagues on the sell side say Jeevanjee has insights that can come only from an intimate, long-term familiarity with the companies he covers. “Asif has a very good understanding of the fundamentals, combined with a good sense of timing,” says one bulge-bracket analyst. “He cuts through the rubbish to the core points and has the conviction to stand by his views.” — K.G.
Andrew Wiles
Charlemagne Capital
EMEA Metals & Mining, EMEA Oil & Gas
Andrew Wiles is a portfolio manager with joint responsibility for Charlemagne Capital’s Eastern European equity investments, but he spends most of his time performing the duties of a research analyst.
“At Charlemagne we have a research-driven investment process that is slightly unorthodox,” explains the London-based analyst, in his debut appearance in Europe Best of the Buy Side. “There is no distinction between portfolio managers and research analysts; portfolio managers spend 90 percent of their time researching.” The rationale, he says, is to make sure nothing comes between the manager and the raw information.
Wiles, 34, manages the market-neutral Occo Eastern Europe Fund (up 25.0 percent in 2007) and co-manages (with Stefan Böttcher) a pair of long-only funds, the Magna Eastern European Fund (up 35.1 percent) and the Magna Russia Fund (up 38.0 percent). He also has sole responsibility for research coverage of two of the broadest sectors in Eastern Europe, Oil & Gas and Metals & Mining, and companies in those sectors figure heavily in the regional portfolios he oversees.
“We look to identify situations where the market is ascribing incorrect probabilities to certain outcomes,” he says. “Current examples include the growing likelihood of a material transformation in the Russian tax regime.” Wiles believes that recent policy initiatives indicate changes are coming that will reduce the tax burden on Russian oil companies, thus improving returns on invested capital. The possibility of such changes is not factored into current valuation levels, he says, creating a “mispricing opportunity.”
“There are a lot of these kinds of inefficiencies in emerging markets, which means we need to get up close to companies, meet their managements, understand their strategies and find out how competent they are,” he says. “That’s the cornerstone of what I do.”
And he does it very well, his sell-side counterparts say. “He puts himself in a company’s position and tries to estimate potential risks and rewards that might await it,” explains Evgeny Golossnoy, a senior analyst at Russian investment bank Troika Dialog. — K.G.
Gadi Slade
Capital World Investors
Telecommunications Services
Gadi Slade loves to travel, so he couldn’t be happier that his job as a telecommunications analyst puts him on the road about one third of the time, visiting companies in 40 countries.
Globe-trotting comes naturally to the Capital World Investors analyst: As a child he divided his time between New York and Israel. He earned bachelor’s degrees in both industrial engineering and psychology from Stanford University in 1996, then moved on to Harvard University for his MBA, completed in 2000. He joined Capital in Los Angeles that year, transferred to London the following year and remained there until 2004, when he moved to New York. Last April, after the birth of his twin daughters, Slade returned to London, which will be his home base for the foreseeable future.
“My wife is British and wants to spend more time with her family,” says Slade, in his Europe Best of the Buy Side debut. “Plus, the bulk of my coverage is European.”
Slade, 37, contributes to eight of the 39 American Funds that Capital sponsors, including the EuroPacific Growth Fund (up 19.0 percent in 2007); the New Perspective Fund, which focuses on companies involved in global trade (up 16.0 percent); and the New World Fund, which is devoted to companies that do business in emerging markets (up 32.9 percent). In determining whether to recommend a particular company, he considers “on a top-down basis, what are the most important things that will drive the share price? Typically, there are only two or three things that matter, such as dividend policy, acquisition plans, potential regulatory changes and revenue growth,” he says.
“I don’t need every last detail about the business.”
Slade’s approach may sound casual, but sell-siders say it works. “He digs deep and gets to know management at multiple levels, to understand the business and its strategy,” observes one bulge-bracket analyst.
It’s an exciting time to be covering telecoms, Slade says. By the end of this year or early next year, emerging technology will enable wireless carriers to expand into remote areas, allowing them to increase subscriber airtime and usage. That “could really change the dynamics of the business,” he explains. — R.R.
The Best of the Buy Side
Robin Asquith | JPMorgan Asset Mgmt | Beverages, Food Producers
Santiago Bannatyne | Barclays Funds | Banks
Jacques Chazelle | Crédit Agricole Asset Mgmt | Luxury Goods, Retailing/Food & Drug Chains
Esther Dijkman | Société Générale Asset Mgmt | Insurance
Robert Donald | GLG Partners | Building & Construction, Capital Goods
Markus Engels | Cominvest Asset Mgmt | Insurance
Edward Field | M&G Investment Mgmt | Telecommunications Services
Stephen Flynn | AllianceBernstein | Utilities
Richard Green | GLG Partners | Technology/Semiconductors, Telecommunications Equipment
Michael Hulme | MFS Investment Mgmt | EMEA Oil & Gas
Asif Jeevanjee | JPMorgan Asset Mgmt | Business & Employment Services, Transport
Ian Kirwan | AllianceBernstein | Aerospace & Defense, Autos & Auto Parts
Kerstin Landau | RCM – Allianz Global Investors | Aerospace & Defense, Transport
Peter Lawrence | JPMorgan Asset Mgmt | Capital Goods
Francine Lenoir | Crédit Agricole Asset Mgmt | Aerospace & Defense, Capital Goods
Emmanuel Martin | Crédit Agricole Asset Mgmt | Metals & Mining, Oil & Gas
Christian Pecher | JPMorgan Asset Mgmt | Technology/Semiconductors, Technology/Software
Christophe Puyo | Société Générale Asset Mgmt | Technology/Semiconductors, Technology/Software
Johannes Ries | Cominvest Asset Mgmt | Technology/Software
Christian Schlimm | RCM – Allianz Global Investors | Chemicals
Gadi Slade | Capital World Investors | Telecommunications Services
François Travaille | HSBC Halbis Partners | Telecommunications Services
Alberto Vigil-Escalera | Santander Gestión de Activos | Metals & Mining, Oil & Gas
Andrew Wiles | Charlemagne Capital | EMEA Metals & Mining, EMEA Oil & Gas
