After two decades on Wall Street, David Weild is devoting himself to saving orphans. That is, orphans of the corporate variety. Weild, 48, who ran Nasdaq’s listings business from 2001 to 2003 and previously headed investment banking for Prudential Securities, last month launched a new company, National Research Exchange. Its goal: to reverse a destructive trend in which Wall Street research firms have withdrawn from covering small and midsize public companies and left them less likely to attract investment capital.
Today fully 45 percent of all public companies are not covered by Wall Street analysts, according to Reuters Research. Of those that are covered, 75 percent are followed by only one or two analysts. Why so little interest? Securities firms, tarnished by scandal and new regulations aimed at countering conflicts of interest, have dramatically reduced their analyst ranks, focusing their resources on covering the biggest, more widely held companies. Institutional investors, under pressure to lower transaction costs, are less willing to pay for research. All of this, says Weild, raises the cost of capital for smaller firms, which have traditionally had easy access to public markets.
“We’re at risk of losing what has made our capital markets the greatest in the world,” he says.
New Yorkbased NRE aims to address this problem by serving as an intermediary, bringing together potential sponsors and suppliers of research. Small-cap companies, for instance, can hire NRE to track down research firms willing to cover them. Other sponsors might include money managers who own an orphaned company and believe that research coverage would help boost its value. NRE will keep all parties’ identities confidential and monitor the research produced. That will help diminish the conflicts of interest that can taint research paid for by the companies being covered.
“We can fix the capital markets,” says Weild, “and do it in a way that is respectful of investors.”
