Do Smaller Firms Offer Better Research

Excerpt from:
“Do Smaller Firms Offer Better Research?”
by Sarah Husband

Appearing in High Yield Report, Vol. 13, No. 40, October 14, 2002
Copyright 2002 by Thomson Media

    While some large Wall Street firms are feeling the strain of heavy scrutiny and low investor confidence that have resulted from the conflicts of interest between research and investment banking, other smaller, highly specialized boutiques are finding that offering objective, impartial research is a valuable asset in these troubled times.

    US broker-dealer Maxcor Financial Inc. is one example. The firm’s leveraged finance group is a relative newcomer to that market, but unlike many players, it is feeling confident about the future. In its five months of existence, the group has managed to attract a range of investors, from small hedge funds with $500 million under management, to large-scale institutional investors….

    The forte of companies like… Maxcor is their focus on niche areas. Maxcor’s goal is to cover what the leveraged finance team calls “orphan credits,” bonds from the increasing number of distressed, defaulting or restructured companies resulting from the deteriorating macroeconomic environment and the record default rate.

    “The venture was launched on the premise that inefficient markets and a contraction in both the high yield market and Wall Street would result in an ever-widening gap of the middle market,” said Mario Monello, managing director of the leveraged finance group. “That premise has been proven true.”

    Indeed, Maxcor did well by stepping in to cover the middle market, an area most traditional high yield players neglected. The firm seized the opportunity to cover these credits by providing quality sponsorship, research coverage and sales and trading in numerous distressed and restructured names….

    Maxcor’s one-page research notes provide concise, objective analysis of each company, and Maxcor encourages clients to discuss the research with the team.