Last week Thomas Weisel Partners announced that it is shutting down its small cap research offering, Discovery Research. The 8-K filing says
Thomas Weisel Partners Group, Inc. (“Registrant”) announced today that it would discontinue its Discovery Research coverage of U.S. equities. That coverage is being discontinued as a result of the recruitment of key Discovery Research personnel to BNP Paribas Securities (Asia) Limited, a BNP Paribas affiliate. Thomas Weisel Partners is pursuing its legal remedies in connection with these departures. Discovery Research, a subscription-based research product, was produced out of Thomas Weisel Partners’ office in Mumbai, India. Thomas Weisel Partners intends to continue to conduct other business and operations through its Mumbai, India office.
There are two different reasons why I find this news interesting.
One, if what TWP is alleging is true, (they have filed a lawsuit in San Francisco) this is perhaps one of the worst victims of uncontrollable attrition in India that I have come across. To have to close down a business because of the loss of key (and what apperas to be most) personnel, is bound to leave you bitter. Ergo, the lawsuit. BNP also made an announcement and it seems that the team will be covering Indian stocks unlike Discovery.
Attrition is a big problem for anyone employing white collar workers in India today. Most of it is due to the hypergrowth in some sectors like IT and Financial Services. But some of it is also because young people starting out in careers undervalue the importance of learning which comes from working with a good team and over a decent period of time. More on this some other day.
The other thing that is interesting about Discovery Research folding up is that it was doing small cap research on US stocks but in a different model. All the research activity – analysis, model building, channel checks, even management discussions – was being carried out from India, to keep costs down.
Small cap research is an interesting opportunity area. There is evidence that traditional sell-side as well as independent research coverage of small caps is on the decline. Commission flow to research isn’t what it used to be and its an easy decision for research shops to cut coverage on small caps to make both ends meet.
So what happened here? My guess is that Discovery’s traction in the market was middling to low. Otherwise, TWP would have done something either to retain the team or to rebuild it. Or maybe they just got tired of managing an itinerant workforce, to whom Discovery was just a short stop on the way to the next job. Regardless, small cap research remains a good opportunity for low cost, scalable solutions.
One look at the growing brokerage and financial services industry in India will give you all the answers. Look at the valuations offered to an India Infoline, Motilal Oswal, Edelweiss etc. These firms now offer top $$ to attract talent but the talent pool itself is limited. Add to that boutique outfits founded by ex-investment bankers that sprout all around. They can’t afford top talents at the asking price and will settle for analysts from pureplay research firms with the hope of beefing them up. Small cap research firms play a very good catchment area.
As for the lawsuits, that’s just throwing good money after bad. Attrition can be reined in only by a combination of factors like aggressive cash/stock compensation policies, exposure to state of art technology, good working environment, freedom to innovate and scope for terrific career growth provided by a responsive management.
Extraordinary to see that a firm should think a lawsuit the right way to ‘fight’ something – free movement of labour; after all it can hardly be assumed that the TWP employees were abducted en masse by BNP – on which a large bit of Silicon Valley phenomenon is predicated! Perhaps the Financial Services sector can learn a thing or two from the technology industry after all, even as they learn to use it in their business to deliver enhanced value.
The reality of the Indian situation is that the workers are scared – of being made redundant by cheaper younger staff from within/without the country, not being able to save enough before the next crash, being in home mortgage traps etc…I bet 90% of the white-collar workers in India secretly fear that their work is going to go to China in the next 5 years. So not many are buying the ‘value’ proposition from their current employers.
it is a little naive and presumptuous of you to draw generic conclusions on attrition in the country and the work ethic of indian professionals without verifying your facts. one just needs to listen to Thomas Weisel’s Q3 earnings call to realize that Discovery Research was terribly underperforming on client acquisition. so your flawed conclusions about the work ethic of the team could be flipped around to argue that the casual attitude of certain multinational firms to their India operations is bound to hurt.
Rajesh, I have entertained the notion that Discovery was not successful which contributed to its demise
But it is also true that they have sued BNP Paribas over this issue. Obviously, there are other things at play too.