Despite grim predictions of spending declines on investment research, some players in alternative research are seeing a reason to expand their offerings or test new models for independent research. According to Sanford (Sandy) Bragg, CEO and president of Integrity Research Associates, LLC, who posted a blog yesterday titled “Damn the Torpedoes,” there are firms whose models could do well in this recessionary environment.

Bragg cites firms like Off Wall Street, a boutique research firm that specializes short ideas, and Access 342, a start-up that is attempting to build a platform for marketing securities analysts to the buy-side as examples of firms that are expanding or inventing new models. The firm recently profiled Bragg also notes that independent research firms like Soleil Securities and Research Edge have been hiring analysts.

On the other hand, commission spending on research is expected to decline by as much as 40 percent in 2009, Bragg’s firm estimated back in October. Hedge funds drive the use of independent research, and industry sources are predicting that 30-50 percent of hedge funds will close. Hedge funds are also cutting positions though most are not publicized, and layoffs are spreading to the buy-side. There’s also the ending of the global research settlement money (a la Elliot Spitzer) imposed on retail brokerage houses that was flowing into independent research and subsidizing the business.

Back in commission spending on research is expected to decline by as much as 40 percent in 2009, Bragg’s firm estimated back in October.
Still there are some bright spots on the horizon and some persistent In his blog, Bragg cites Hong Kong research marketer Enzard Limited as setting up an analyst hotel for analysts to leverage its regulatory status and marketing capabilities. While analysts produce the content, Enzard provides the infrastructure, including publishing, compliance, account management, IT invoice, payment collection, etc., according to the blog.

With the credit markets still unfreezing, and ratings firms discredited from the triple A-rated CDO debacle, institutions on the fixed-income side are looking to alternative credit research firms (like Credit Sights and Gimme Credit) and analytics providers (like Markit, Intex or Credit Derivatives Research), Bragg wrote.

Technology is another growth area for the research business. With fewer resources and leaner staffing, Bragg expects the buy side to leverage “mashup technology, search driven platforms and research management systems.” So despite the contraction occurring, this could be a time when new alternative research firms expand.