Credit research poll 2001: The truth about sell-side research
As the European credit market has grown in the past two years, banks have struggled to position themselves to capitalize on the opportunity. In a bid to win much more lucrative underwriting business than high-grade, frequent issuers ever offered, they have poured money into credit research, importing staff from the US, where credit analysis is a long-familiar concept, and plundering the rating agencies for talent. But the response from investors has been mixed. While sell-side credit analysts may offer a convenient shortcut to essential facts and figures about a company, fund managers are quick to highlight their lack of independence. In a volatile credit market, buyers of credit bonds are doing more of their own analysis in-house. Still, brokers insist that this doesn’t mean their role is under threat.
If credit analysts are confused, who can blame them? Not so long ago, they were flavour of the month with investors. Fund managers were glad to take advice on new issues from bankers close to corporates' new benchmark deals, confident that they proffered the most accurate and up to date information. They were happy to listen to their views on the secondary market too. But as European investors have started to catch up with their counterparts in the US, that has changed. Now that greater sophistication is becoming the norm on the buy side, fund managers are starting to be more critical of the research produced by the sell side.
They say that the proximity of these analysts to the deal, rather than making them highly qualified to comment, is a strong incentive to seek a second opinion. One European fund manager expresses a commonly held view: "You have to take all sell-side research with a grain of salt."