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Goldman's new research reports
Wall Street analysts are a mistrusted bunch these days, and investment banks are trying to make amends. The latest effort comes from Goldman Sachs.
Last month Goldman recruited longtime Merrill Lynch research chief Andy Melnick to co-head global research with veteran Goldman health care banker Suzanne Nora Johnson. The assignments come with a measure of power and autonomy that's unprecedented for Wall Street research chiefs. Named to the bank's 21-member management committee, Melnick and Nora Johnson will report directly to the executive committee, composed of CEO Hank Paulson and co-presidents John Thain and John Thornton.
At most big Wall Street firms, research managers report to lower-level executives who often have direct operating responsibility for brokerage and investment banking. These conflicts of interest have been well documented in the past few years.
Goldman hopes the new chain of command will make it clear that investment research is an independent operation. Goldman also banned analysts from owning the stocks they cover, a practice that led to serious conflicts of interest during the dot-com boom (Institutional Investor, April 2001).
"Research will be represented with two people on the management committee, and as we discuss issues and set policy, Andy and Suzanne are at the right place to help us resolve and manage any business tensions that might arise," says management committee member Bob Steel, who heads the firm's equities business.
Goldman also wants to restore the lost luster of its research team. The firm's U.S. research effort has fallen sharply, from second place in 1998 to seventh last year in this magazine's ranking of the Street,s top research houses. During Melnick's 13-year tenure, Merrill's research department finished first in II,s All-American Research Team eight times, including a six-year run at the top, from 1995 to 2000.
Melnick and Nora Johnson replace Greg Ostroff, who is retiring, and Barry Mannis, who is being reassigned. The new co-heads haven,t yet decided how they will split their duties. But one priority is clear: Goldman will soon be doing some serious recruiting to strengthen its research team, which hasn't grown as fast as many of its top competitors' departments in recent years. "We will be evaluating our business to determine the appropriate investment for a world-class franchise," says Nora Johnson.
Melnick, who turned aside recruiting calls from hedge funds and other institutions after leaving Merrill late last year, says the appeal of such a senior position at a firm with Goldman's reputation was too much to pass up. "I always looked up to Goldman as the top firm in the world," he says. "When you get a call from the New York Yankees and they ask you to play center field, you generally respond in the affirmative."
At most big Wall Street firms, research managers report to lower-level executives who often have direct operating responsibility for brokerage and investment banking. These conflicts of interest have been well documented in the past few years.
Goldman hopes the new chain of command will make it clear that investment research is an independent operation. Goldman also banned analysts from owning the stocks they cover, a practice that led to serious conflicts of interest during the dot-com boom (Institutional Investor, April 2001).
"Research will be represented with two people on the management committee, and as we discuss issues and set policy, Andy and Suzanne are at the right place to help us resolve and manage any business tensions that might arise," says management committee member Bob Steel, who heads the firm's equities business.
Goldman also wants to restore the lost luster of its research team. The firm's U.S. research effort has fallen sharply, from second place in 1998 to seventh last year in this magazine's ranking of the Street,s top research houses. During Melnick's 13-year tenure, Merrill's research department finished first in II,s All-American Research Team eight times, including a six-year run at the top, from 1995 to 2000.
Melnick and Nora Johnson replace Greg Ostroff, who is retiring, and Barry Mannis, who is being reassigned. The new co-heads haven,t yet decided how they will split their duties. But one priority is clear: Goldman will soon be doing some serious recruiting to strengthen its research team, which hasn't grown as fast as many of its top competitors' departments in recent years. "We will be evaluating our business to determine the appropriate investment for a world-class franchise," says Nora Johnson.
Melnick, who turned aside recruiting calls from hedge funds and other institutions after leaving Merrill late last year, says the appeal of such a senior position at a firm with Goldman's reputation was too much to pass up. "I always looked up to Goldman as the top firm in the world," he says. "When you get a call from the New York Yankees and they ask you to play center field, you generally respond in the affirmative."