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January 2, 2012

Bucking the Trend

Wedge Partners Builds Up

By Peter Chapman

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Despite a dreary outlook for jobs in equities, one firm is hiring in its quest to build a boutique research house.

Wedge Partners is a tiny but steadily growing firm that is part of an elite group of only 165 broker-dealers that offer research and trading services.

Evan Morgan

Based in Denver, the broker-dealer is benefiting from two significant trends that have transformed the brokerage landscape in recent years. First, money managers have shifted more of their research dollars away from the bulge bracket and to smaller providers. Second, turmoil at larger firms has made seasoned talent available to smaller shops. "In this environment, we have an opportunity to find good people," Wedge chief executive Evan Morgan told Traders Magazine. "It's during these periods when you build businesses."

While the news isn't all bad in equities-Sanford C. Bernstein reported a rise in stock trading commissions last year-there have been plenty of layoffs and more expected. Investment Technology Group, Knight Capital Group, and Bank of America Merrill Lynch have all announced layoffs in equities. Banking boutique Gleacher & Co. made redundant its entire 80-man equities group. Hedge fund giant Citadel Investment Group shuttered its nascent investment bank and equities research effort. The bankruptcy of MF Global threw equities staffers on the street.

By contrast, Wedge is looking to hire across the board, said Morgan, the firm's CEO since 2007. That means adding analysts, research salespeople and sales traders to the 25-person staff. Still, Morgan cautioned, he's doing so slowly and selectively, with an eye on costs. Salaries for most of the sales and trading staff are commission-based.



Morgan has built up research platforms before, most notably as director of research at Midwest Research/Maxus Group, a prominent Cleveland boutique that fell apart in 2006 after five years of ownership by First Tennessee Bank.

Founded by Morgan and others in 1996, Midwest was "well regarded by clients for integrating channel checking with its fundamental research," according to industry consultant Integrity Research. It was often named among the "Best of the Boutiques," according to Institutional Investor. The shop grew steadily from 1996 to 2001, whereupon its acquisition by a unit of First Tennessee accelerated things, Morgan said.

Growth is harder this time around, though, Morgan says, because the buyside has a smaller commission pool to spread around. That can be seen in the numbers. According to Greenwich Associates, institutional stock commissions dropped by about 16.5 percent between 2008 and 2010. From an all-time high of $13.9 billion in the 12 months to February 2009, commissions dropped to $11.6 billion in the year leading up to February 2011.

At least one research house expected further declines last year. Tabb Group, which pegged institutional commissions at only $8.4 billion in 2010, predicted that figure would decline by 17 percent last year, to $7.25 billion.