"For us it‚s great," he says. "They really know the space. This is what they do for a living."
The infusion of capital will be used to expand product lines and distribution channels, including the expansion of marketing staff, Hurley says.
The investment comes at a time when Undiscovered Managers is restructuring its ownership. Under the changes, finance and loan firm Amresco Inc. has reduced its ownership share from 36% to 10%. Amresco filed for bankruptcy protection on July 2 to facilitate a sale of the company‚s assets. Management ownership of Undiscovered Managers went from 54% to 60%, Hurley says.
Holes Develop In Chinese Wall Preventing Analyst Conflicts
Investors have long known they have to take sell-side analyst research with a grain of salt.
But they might consider swallowing a whole ocean when it comes to a recommendation about a company for which the analyst‚s firm has done underwriting work. According to data from Investars.com, an online investment information service, investors lost an average of 53.34% when they followed the advice of an analyst employed by a Wall Street firm that has led or co-managed a particular stock‚s initial public offering.
By contrast, investors lost just 4.24% when they took the suggestions of analysts whose firms had no underwriting relationship with the companies researched.
Neither result is stellar. What is eye-popping is the wide disparity between the performance of stocks touted by analysts whose firms have something to gain–namely, lucrative underwriting fees–and other, nonaffiliated stocks.
In many ways, the Investars data further quantifies what many investors have believed for some time: the so-called Chinese Wall that is supposed to separate a firm‚s analysis and investment-banking business has crumbled.
"We have analysts come through here all the time, and we know to be careful," said David Klaskin, a money manager and president of Oak Ridge Investments in Chicago. "The overall quality of research isn‚t good."
Investors often know that there is a subtext to many analysts‚ ratings, particularly when the firm is trying to protect an investment-banking relationship, Klaskin said.