Sun, Aug 01, 2004 page12

• Research company's unbiased focus on Asian market pays off

  In the wake of the Wall Street research scandals two years ago, a former Salomon Smith Barney employee is banking on independent market research and analysis

  • NY TIMES NEWS SERVICE
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  Shortly after David Riedel lost his job two years ago as an equity analyst at Salomon Smith Barney in the wave of layoffs that followed a research scandal on Wall Street, his entrepreneurial juices kicked in.

  He knew that more investors were looking for advice at small, independent research firms with no conflicts of interest that could taint their reports. He knew he had valuable expertise about a part of the world that American securities firms generally did a poor job of covering. And he knew the Internet could deliver tools that would have been unimaginable a few years earlier. All he needed to translate that knowledge into a money-making opportunity was a tolerance for risk. So, with US$200,000 in capital, he started the Riedel Research Group in May last year in his seventh-floor loft apartment in Manhattan's TriBeCa neighborhood.

  A little more than a year later, he has signed up six clients to pay US$60,000 a year for research about companies in Southeast Asia, written by analysts he recruited there. He says he is confident he will reach his goal of 30 subscribers within a year. He also says that, given the generally lower compensation costs in Asia and the free tools offered by the Internet, his revenues already cover his overhead costs.

  Riedel's swift transition from Wall Street reject to successful business owner illustrates the power of the Internet to propel people with specialized expertise into global entrepreneurs.

  "It is a testament to this new age of Internet-based commerce," Riedel said, "that someone like myself, with knowledge and experience but limited capital, is able to use technology to run and manage a global business efficiently and with relatively low costs."

  At Salomon Smith Barney, a unit of Citigroup, Riedel, 37, covered small companies and was not caught up in the storm over tainted research, but he nevertheless found himself among the legions of analysts who found themselves out of work when the dust cleared in early last year.

  Even before he left Salomon, Riedel said he had been toying with the idea of starting a research firm to specialize in Asian companies, keeping his eye on niche outfits like the Avalon Research Group in Boca Raton, Florida, the Garp Research Corp in Towson, Maryland, and Farmhouse Equity Research in Portsmouth, Rhode Island, which performed research on a small number of US, European and Japanese stocks and which -- with doubts growing about the veracity of research by the Wall Street giants -- were gaining converts.

  But, except for Japan, the independent firms mostly ignored Asia. And Asia was Riedel's specialty. He had studied Chinese and Asian affairs at the University of California, Berkeley, and had earned an MBA at the Chulalongkorn University in Bangkok, where he joined the local office of a British broker, Smith Newcourt, in 1992. Fluent in Thai and Chinese, he moved two years later to Salomon Brothers, before its 1997 merger with Smith Barney, as an analyst covering the telecommunications industry in Thailand and other Southeast Asian countries. In 1998, he was transferred to New York, where he followed small company stocks until his layoff in December 2002. At that point, he took a hard look at Asia and saw an opportunity that was tailor made for him.

  "There were some small research firms around region specializing in China or Hong Kong or Singapore, but mostly providing macro-economic analysis," Riedel said.

  "No one was really following individual companies, except the Asia-based brokers. And if you think Wall Street has conflicts of interest and relationship problems affecting its research, then you'd be shocked at what passes for `unbiased' equity analysis in Asia," he said.

  The Internet was crucial to starting his company. A Buenos Aires company, the NetMen Corp, created his logo, business cards, letterhead and a static Web page for the soon-to-be-announced company in six weeks, for US$550. AmbitionWeb in Houston designed his Web site, www.riedelresearch.com, for US$1,110. Eire Web Design in Dublin developed Microsoft Word document templates for analysts to use in writing their reports for US$350.

  Riedel then turned to Hong Kong-based JobsDB, Asia's largest interactive recruitment network, which covers Australia, China, Hong Kong, Indonesia, South Korea, Malaysia, the Philippines and Singapore, to help him find the talent he needed. He knew there was an abundance of smart analysts. Even so, he was taken aback by the response he got.

  "I put a help-wanted listing for three markets -- Indonesia, Thailand and Malaysia -- and received 300 responses, 120 of which were very well qualified for the job," Riedel said. In early September, he hired four analysts in Thailand, two in Indonesia and one in Malaysia. By Sept. 15, his site was up and running with coverage of three of his four target countries.

  One of his analysts in Indonesia worked for BNP Paribas, studied at Columbia business school and worked for a hedge fund in New York before returning to Jakarta, where Riedel hired him. Another analyst worked for Merrill Lynch in Thailand before the American broker shut down its Thai operations two years ago and worked for the local office of SBC Securities before joining Riedel's group.

  An eighth analyst has been hired to cover China, and Riedel says he intends to increase his staff to 16 within a year, with four analysts in each of his four core markets. He says clients so far include a San Francisco hedge fund, an emerging-markets stock fund in New York and a London investment fund that specializes in Asia.

  "There are hundreds of fund managers with an interest in Asia," Riedel said. "I am initially targeting those based in Europe or the US."

  Riedel says his firm benefits from the cultural divide between the United States, which values straight talk, and much of Asia, which frowns on direct criticism. "By having an independent view," he said, "we have the advantage of being able to say we think the market is wrong or missing the point or neglecting an opportunity or overstating the prospects for a stock."

  That is what attracted the head of the New York emerging-markets fund to Riedel's research. "He is the only one around I have found providing independent research on individual companies in Southeast Asia," said the money manager, who requested anonymity. He said he liked the way that Riedel "is not shy about telling you when to hold or sell a stock."

  He cited recent contrarian calls by the firm's researchers on two Thai companies: CPF, a Thai agri-business concern that had been hit hard by the avian flu virus at the start of this year and whose stock had been pounded as a result, and Grammy, a Thai media and entertainment company that, despite its popularity with investors, was under increasing competitive pressures.

  Riedel's analysts rated CPF a buy because they saw data and developments that indicated the stock was poised for recovery, while they issued a sell advisory on Grammy, which they believed faced increasing problems. The New York money manager, who bought CPF, says that it has so far outperformed a declining market by 2 percent and that Grammy has fallen by 13 percent. "One good call can be worth the price of the service," he said.

  Some potential clients who have reviewed Riedel's research are not necessarily buying it, however. John Chisholm, who co-manages the US$440 million Acadian Emerging Markets mutual fund in Boston, which invests primarily in Asia, says he probably will not, at least not yet.

  "Coverage in the four markets looks good, and the reports are relatively clear and well explained," Chisholm said. However, he said, some of the reports had not been updated in six months and "many of the companies are lacking earnings and cash flow models."

  Riedel says he is confident he can reach his goal -- and, he says, his limit of 30 -- for his the Web-based service by next summer. Growing interest of institutional investors in Asian, and particularly Chinese, companies is driving demand, he says.

  "Asia is back on the radar screens of most global investors looking for alternatives to Wall Street," he says. "But they want to see what is happening clearly and honestly without any hype or conflicts. That's our market."
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