To make money on Wall Street you have to be rich already

Not All Investors Are Equal

Gretchen Morgenson reported in The Times this week that a handful of top hedge funds appear to be taking an early peek at views from research analysts, allowing them to trade on the information while other investors are still in the dark. The tips come from surveys that the hedge funds send to research analysts, either monthly or quarterly, asking about possible earnings surprises or the competitive position, management or innovations of companies.

Among hedge funds using the surveys are those run by BlackRock, the money manager; Marshall Wace, a large British hedge fund operator; and Two Sigma Investments, an American hedge fund company. Among analysts that have participated in the surveys are those from Citigroup, Goldman Sachs, JPMorgan Chase, Merrill Lynch and several large European banks.

The funds say they ask only for information that analysts have already expressed publicly, and some participating banks say their analysts follow strict policies to keep their comments in line with their public views. If the information is public, why do a survey? A BlackRock spokesman said the surveys allow troves of data from analysts to be crunched with other data for use in computerized investment models. But documents obtained by The Times from Barclays Global Investors, now a unit of BlackRock, tell a different story. Regarding information about analysts’ expectations for earnings, a confidential memo from 2008 stated the firm expected “to be able to capture the information not released to the market.” A 2009 document about the surveys said, “We are trying to front-run recs,” meaning to trade ahead of recommendations from analysts. BlackRock says the wording in the memos is sloppy, inaccurate and inconsistent with the purpose of the surveys and the firm’s ethical standards.