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March 15, 2007

Goldman Sachs Expands Its Research Payment Programs

By Nina Mehta

Goldman Sachs, looking to bolster its third-party research program, set up a new business to house and market vendor-supplied research services. Called Hudson Street Services, the entity complements Goldman's Hudson 3RB, through which the firm promotes the research of hundreds of broker-dealers.

Hudson Street Services offers analytics, measurement tools and other research-related data products from technology vendors. Four firms currently participate in the business: Investars, Connotate Technologies, ASSET4 and Wall Street on Demand.

Goldman bought a minority stake in each of these companies and plans to do the same with other technology firms. The list could expand to a dozen companies, according to Goldman.

Investment managers can pay for these products with cold cash or through Goldman's three-year-old commission management program, called Research XPRESS, says managing director Tom Conigliaro. Research XPRESS-technically a client commission arrangement, according to the latest Securities and Exchange Commission lingo-covers research provided by both broker-dealer and non-broker-dealer firms.

The timing of the Hudson Street Services launch follows the receipt by Goldman of a no-action letter from the SEC. The letter specifically permits non-broker-dealers to be paid for research-related products and services through Research XPRESS (see story in Washington Watch).

Hudson Street Services is a "natural extension" of Goldman's Research XPRESS payment portal and third-party research and brokerage, according to Conigliaro. "It's easier for clients to consolidate their trading to create a single commission pool and utilize that pool to pay a variety of research firms," he says.

Conigliaro oversees Hudson 3RB. He reports to Mike Sanders, a 21-year Goldman veteran responsible for the Hudson Street umbrella group, which encompasses Hudson 3RB and Hudson Street Services.

The decision by Goldman, a big supplier of proprietary research, to move deeper into third-party research has produced some speculation among industry execs.

"Goldman Sachs is in the proprietary research business, so they will likely lean away from offering something that's similar [to] or competitive with their own research," says John Meserve, a director at BNY ConvergEx Group, the largest manager of third-party research providers.

As for the vendors, they are counting on their relationship with Goldman-and Goldman's marketing prowess-to generate a new base of customers. Kei Kianpoor, chief executive of Investars, which provides research measurement and broker-evaluation services to asset management firms, says he hopes to get 50 to 100 clients through Goldman over the next two years. Investars, founded in 1999, currently has 40 customers.