Expert networks - a matchmaking service linking investors such as hedge funds with company insiders - are under scrutiny from regulators in the United States, but are expanding across Asia, where the market for corporate intelligence is less transparent.
The US Securities and Exchange Commission has charged over three dozen people and firms as part of a broad investigation into ties between investors and expert networks that has uncovered insider trading and helped trigger the high-profile fall of Raj Rajaratnam’s Galleon hedge fund.
Those cases have bruised confidence in expert networks in the United States, and some clients have stopped using the service for fear of falling foul of regulators. But in Asia, where regulators have yet to pay the industry much attention, the service is thriving - fertile ground where emerging market investors are willing to pay for inside knowledge on company supply chains, key personnel moves or regulatory shifts.
“The fastest sales process has been in Asia,” said David Legg, managing director of Asia and Europe for Gerson Lehrman Group (GLG), the biggest player in the industry. GLG says it has tripled its Asia revenue in the past three years. Several local firms have also entered the market.
Legg says a relative lack of transparency in Asian markets means investors are much less willing to rely solely on research from investment banks and brokerages. “In London and New York, you get a lot of people who say: ‘Look, I can rely on some banking analyst on the sell-side to help me figure out something’; In Asia, nobody believes that”.
The growth of expert networks across Asia equips the region’s struggling hedge fund industry with a key information service, while presenting regulators and companies with a new challenge - how to police this paid-for exchange of information.