Expert network

Expert networks are primary research firms that connect buy side investors, consultants, and business decision-makers with industry experts. Consultations between expert network clients and experts may be in the form of "face-to-face meetings, phone calls, teleconferences, video conferences, [or] email exchanges."[1]

According to a 2009 report by Integrity Research, there are at least 38 expert network providers worldwide.[2][3] Although most expert networks operate across verticals and geographies, recent trends point towards specialized expert networks serving a particular geography or vertical.

In recent years, as sell-side research has become increasingly "scarce and less influential," institutional investors have turned to expert networks to gain "new insights and a competitive edge" within a compliant framework. According to a 2011 report published by TABB Group, 81% of investment professionals believe that "talking to experts" is a legitimate, value-adding part of the investment due diligence process.[4]

History

The phrase "expert network" was originally coined by Mark O'Connor of Yankee Group in presentations introducing his August 1997 Management Strategies report, Knowledge Management: People and the Process.

Expert networks became more widely used after the implementation of Regulation Fair Disclosure in 2000, which made it harder for institutional investors to get market moving information directly from publicly traded companies.[5] Hedge funds were early adopters, but the use of expert networks quickly spread to all types of institutional investors, including mutual funds, pension funds, banks, and private equity firms. The investment community continues to be the largest consumer of expert network services. In 2009, expert network companies generated an estimated $364 million in revenues, according to a report by Integrity Research.[6]

Expert Networks As Businesses

In the last 15 years, a rather large industry has sprung up around facilitating "out of network" connections, or connections with professionals with whom the individual or organization doing research has no prior connection. The investment community is the largest consumer of expert network services; an estimated 38 expert network companies generated $364 million in revenues in 2009, according to a report by Integrity Research on the industry.[6]

The first known published appearance of the phrase in this context is in the April 1999 Yankee Group white paper A Knowledge Perspective: The Knowledge Management Product and Service Domain.[7] In the December 1999 publication, "Knowledge Evolution: Tools of the Trade,"[7] clients were advised to utilize Expert Networks to "Understand who the experts are throughout the organization (including the extended organization), and more appropriately employ that expertise within a broader range of business contexts for better decision making."

After the implementation of Regulation Fair Disclosure in 2000, which made it harder for institutional investors to get market moving information directly from publicly traded companies, commercial expert networks became more widely used by financial services firms. Hedge funds were early adopters, but the use of expert networks is now widespread among all types of institutional investors, including mutual fund advisers, pension funds, banks and private equity firms.

Expert Network Business Models

There are many nuances between the types of services and experts provided by each, but historically there were two dominant business models within the industry: Subscription Expert Networks and Transactional Expert Networks. Recently there has also been a third rapidly growing business model which focuses on custom recruitment.

Subscription Expert Networks

The vast majority of expert networks service providers operate on a subscription based business model.[8] These networks charge researchers flat fees for access to a stable of information providers, and the network then pays the information providers hourly rates as they are used by the subscriber base. The network keeps the difference between the subscription fees collected and the hourly rates paid out. This model is becoming more and more popular with MBA graduates and Doctors who are looking for new ways to monetize their knowledge.[9] Gerson Lehrman Group, ENG - Expert Network Group, Primary Insight and Coleman Research are the largest players in Western market. Currently, this model is becoming more and more popular in Asian market such as India, China, Japan, too. Gerson Lehrman Group, Guidepoint, visasQ are the largest players in Asia.

Transactional Expert Networks

A growing minority of expert network service providers have embraced the transactional model commonly used by the face-to-face coaching/tutoring industry or the technology service outsourcing community. These networks pay information providers hourly rates and bill them out to researchers at a higher rate, keeping the difference.

Custom Recruitment Expert Networks

The latest segment within Expert Networks do not charge a subscription fee and instead of recruiting experts for a database, use custom recruitment for each research project undertaken. Clients submit confidential research requests, the expert network seeks out experts/professionals specifically in those fields and return with a list of vetted individuals within one to five days of the initial request. This ensures that the experts are selected on the most relevant information available, thus providing many more accurate matches between client and specific area of interest. The largest players in this space currently include 10EQS, Third Bridge, AlphaSights, Asia CEO Network and Expert Network Group (ENG).

Legal Compliance Issues

One of the biggest challenges faced by expert network operators is legal compliance with regard to the information passed from information provider to researcher.[10] Several expert networks have made headlines in relation to improper information disclosure and insider trading allegations.[11][12][13][14] Networks have taken different approaches to the compliance puzzle. Some spend millions reaching out to publicly traded companies and others don't allow employees of publicly traded companies to consult at all.

Controversy

The Fall 2009 indictment of individuals associated with hedge fund FrontPoint illustrated the compliance challenges of speaking with sources directly. The individuals had initiated access with a Dr. Yves Benhamou,[15] board member of an ongoing clinical trial. Though these began as formal engagements through a network, their exchanges with Dr. Benhamou would become less formal[16] and more specific. They stopped going through the network, opting to contact one another directly, and they allegedly culminated in the portfolio managers coaxing inside information from Dr. Benhamou and Dr. Benhamou obliging. The circumstances illustrate one of the core challenges of primary research in general and a central plank of the expert network platform. The investigations resulted in allegations against Primary Global Research LLC.[17][18] While the United States expert networks were weathering the storm of the insider trading investigations, European expert networks have not been nearly as affected and have been seen as alternatives, experiencing growth and investment.[19]

Further reading

References

  1. ↑ Banzaca, Jennifer. "For Hedge Fund Managers, Expert Networks Offer Access to Corporate Insiders While Mitigating (Though Not Eliminating) the Likelihood of Insider Trading Violations". The Hedge Fund Law Report, Vol. 2, No. 48, December 9, 2009. Hflawreport.com. Retrieved 2013-11-27.
  2. ↑ ""Integrity ResearchFocus: Expert Networks," Integrity Research, 2009". Integrity-research.com. Retrieved 2013-11-27.
  3. ↑ "Integrity ResearchFocus®: Expert Networks". Integrity Research. Retrieved 2013-11-27.
  4. ↑ ""Expert Networks: Industry Barometer", Adam Sussman and Cheyenne Morgan, TABB Group, January 2011". Scribd.com. Retrieved 2013-11-27.
  5. ↑ "Amid Inquiries, Experts Get a Cold Shoulder," Evelyn W. Rusli, Dealbook, The New York Times, December 27, 2010
  6. 1 2 http://secure.integrity-research.com/imageweb/executivesummary-expertnetworks.pdf
  7. 1 2 Howe, Carl (2013-11-05). "Mobile Market Strategies, Mobile Application, Cloud Strategies, Mobile Broadband Strategies, Mobile Device Strategies". Yankeegroup.com. Retrieved 2013-11-27.
  8. ↑ 2009 Expert Network Trends (2009-11-16). "Blog Archive » 2009 Expert Network Trends". Integrity Research. Retrieved 2013-11-27.
  9. ↑ Fioravante, Janice (2013-02-12). "M.B.A.s, doctors try freelance route | Crain's New York Business". Crainsnewyork.com. Retrieved 2013-11-27.
  10. ↑ "Business Week - Have Experts, Will Hire Out". businessweek.com. Retrieved 2008-03-03.
  11. ↑ "Expert Firm's 'Gated Network' May Have Included Insiders, Prosecutors Say". Bloomberg. November 24, 2010.
  12. ↑ Anderson, Jenny (2007-01-17). "Wall Street 'Matchmakers' Under a New York Inquiry". nytimes.com. Retrieved 2008-03-03.
  13. ↑ Timmerman, Luke; Heath, David (2005-08-07). "Drug researchers leak secrets to Wall St.". seattletimes.com. Retrieved 2008-03-03.
  14. ↑ Burton, Katherine; Kishan, Saijel (May 11, 2011). "Little Guys Are Everywhere in Rajaratnam's Insider-Trading World". Bloomberg News. Retrieved 16 May 2011.
  15. ↑ The Wall Street Journal http://professional.wsj.com/article/SB10001424052748703957804575602943099934522.html. Missing or empty |title= (help)
  16. ↑ "optino, is that Latin for options?". Stilltitled. Retrieved 2013-11-27.
  17. ↑ "Business Insider". Articles.businessinsider.com. Retrieved 2013-11-27.
  18. ↑ http://stilltitled.com/2011/04/29/rethinking-expert-networks-compliance-systems-and-research/
  19. ↑ "Blog Archive » US Expert Networks Weather Hurricane "Insider Trading Investigations" while Some European Peers Swim in the Peaceful Waters of Capital". Integrity Research. 2011-09-08. Retrieved 2013-11-27.
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