For the past 30 years,
annual rankings have been the score card by which Wall Street analysts are judged and, to some degree, paid. The roster reflected the insular tastes of its money manager respondents who want analysts who could feed them inside dope and sound knowledgeable about the stocks they were pushing.
"It has always been viewed as a desirable thing among analysts to score high on the
survey," said Chuck Hill, director of research at Thomson Financial/First Call. "Whoever would get the most votes would also get the biggest piece of the research department's bonus pool."
Now, some say the same bear market that focused regulators' scorn on Wall Street research departments is likely to change the complexion of the venerated list, as investors -- institutional and otherwise -- lose patience with old notions of access and look for stock pickers who can actually pick stocks.
"I think you will see stock-picking ability move up on the list this year," said John Babyak, a managing partner at Wolverine Asset Management, which has $100 million under management.
To come up with its "All-America Research Team" last year,
sent questionnaires in the spring to directors of research and chief investment officers at money management firms, including managers on its
ranking of the largest U.S. institutions, as well as other key U.S. and European investors. The magazine publishes the results in its October issue.
As part of its survey,
asks investors to rank a list of attributes that are important to them. Last year, voters placed an analyst's industry knowledge and accessibility way above stock-picking. In fact, earnings estimates and stock selection were ninth and 10th on the list of 12 criteria.
New tastes among clients and new rules for analysts could radically change the role of the
"all-stars" list, which traditionally has been used by securities firms as promotional material when shopping investment banking services. Firms trotted out high-ranking analysts to issuers, arguing that their relationships with potential shareholders were key to a successful deal.
That seems sure to change. On Wednesday the
Securities and Exchange Commission
approved new regulations to curtail conflicts of interest between investment banking and analyst research divisions. The new rules come as New York attorney general Eliot Spitzer is investigating several firms, after finding breaches at Merrill Lynch.
The SEC's new rules will prohibit firms from tying their compensation to related investment banking business. They will also forbid investment banking departments from supervising research analysts, and stop investment bankers from discussing research reports with analysts prior to their distribution, unless the firm's legal or compliance department monitors the discussion.
Analysts won't stop gunning for the top spot on the rankings. "It is a major score card that has a history. Right now, it remains a focus for me, but not for my firm," said an analyst at a large Wall Street firm. "I think you will find that is true for all analysts."
Institutions, on the other hand, seem to take
annual rankings with a grain of salt.
"They used to send their survey to me, but I was never really impressed by it," said Richard Keim, a partner at Kensington Management Group, which has $60 million under management. "The whole thing is really very political. Around the time that the questionnaires were sent out, analysts would to call us and say, 'hey, don't forget, the survey will be coming soon, remember to vote for me.'"
What's more, some observers say that money managers have always done their own homework. "Institutional investors have been aware of the conflicts of interest that sell-side analysts face all along," said Richard Wyler, a spokesman for the Association for Investment Management and Research. "They've told us they don't really consider the ranking, but make to their own conclusions, instead."
The rankings are also seen as part of a system by which small investors were deceived into thinking too highly of Wall Street research. "The do-it-yourselfer investors assumed a level of objectivity that others knew for years was not there," Wyler said.
But given there are 10,000 analysts out there, the list may serve the purpose of sorting out the horde for newbies. "For them, it's still a starting point," said Hill. "But institutions aren't spending a lot of time poring over it."