Saving time and money by outsourcing research

By Sameera Anand, 18 July 2007

The executives behind Amba Research in India say outsourcing the information component of research allows a bank's analysts to focus on higher-value activities.

Amba Research is a firm founded by global investment bankers, which does research for clients from an offshore location. FinanceAsia speaks to founder Mohan Alexander and managing director Paul Alapat about the model.

How did Amba Research begin?
Mohan Alexander: Amba Research was founded by Wall Street veterans who have trained hundreds of analysts in the past 20 years. Andrew Houston was the head of Asia ex-Japan Research at JPMorgan. Brad West was the head of global emerging markets equity research at Deutsche and has also worked at CLSA. Anand Aithal was Asia equity strategist at Goldman Sachs and also led Goldman's India research joint venture. I was deputy head of Asia research and head of India research, Deutsche and had also worked at Lehman.

The four of us got together to start an investment research outsourcing firm that provides well trained junior and mid-level research analysts. Our conversation with prospective clients revealed a gap in the market for a firm with our domain expertise and operating background.

We were joined in October 2004 by Dr Paul Alapat who used to be chief economist for Asia at Nomura and before that regional financial economist for Lehman.

Where and when did you start?
MA: We evaluated locations in the Philippines, Malaysia, Pakistan, Sri Lanka and India. We started our first delivery centre in Colombo because we saw a number of finance professionals in a market, which was not very active. We started in 2003 with 10 analysts.

We have developed a comprehensive, proprietary analyst training programme. Our clients are investment banks, hedge funds, asset managers and commercial banks. Today, besides Sri Lanka, we have delivery offices in India, Singapore and Costa Rica.

Can you explain your business?
MA: The whole investment industry is globalising. Asset managers are looking internationally more than ever before. If investment ideas are coming from around the world, then researchers like us should be around the world.

Our contribution to sell-side research reports varies but can be up to 80% of the final piece. For the buy-side we help in various stages of the idea screening process, especially in the early stages. Over a period of time, as our analysts build up a relationship, the value they can add to the client increases, although the final investment decision always comes from the client.

What is your value proposition?
Paul Alapat: The key cost of outsourcing is the management time spent in training the vendor – getting this wrong can overwhelm any financial saving or any increase in productivity. As we are exclusively in investment research, we hit the ground running on an assignment, saving the client time and money. We provide the extra bandwidth that allows investment professionals to screen more ideas.

We let seniors in Wall Street concentrate on what they are best at, which is their ‘insight’. In this information age there is too much information that needs to be screened by well-trained, smart people. At Amba we provide the muscle in terms of research to the Wall Street seniors.

Our team works on the basic building blocks of investment analysis, such as detailed financial models, background write-ups on companies/industries and valuation analysis. This enables the onshore research team to expand its universe of coverage within the existing budget.

MA: We view ourselves as a productivity enhancing relationship for the onshore analyst, freeing up their time for higher value activities such as meeting company management, attending industry conferences, generating ideas and providing insight.

Who are your clients today?
MA: We cannot share client names, but we work with more than half of the global bulge bracket investment banks, over 50 hedge funds, and a significant number of institutional investment managers.

How has the firm grown?
MA: We started operations in 2003 with our first research delivery centre in Colombo followed by Bangalore in 2005. Bangalore has quickly grown to become our largest. We set up our third delivery centre in Costa Rica in 2006. We are now 550 people across four delivery centres.

The delivery centres are located in time zones, which allow us to support our clients in the Americas, Europe and Asia. We also have sales offices in New York, London and Sydney.

How do you win clients?
MA: Our main sales offices are in New York and London. Our big strength is the background of our management team; we have been at senior levels on the inside and therefore, know what clients expect of us.

PA: In terms of geographies we cover the globe and have clients in the Asia-Pacific region, Europe as well as the US. We have in house analysts covering every sector.

What niche do you occupy?
PA: We are a purely an IRO. Our focus is on capital markets providing equity research, fixed income research and quantitative research.

MA: Our business is people-centred, and training and domain intensive. Our measure of output is not the number of reports generated but the quality of creativity and judgment which goes into a report.

What is the profile of your analysts?
MA: We have a stringent hiring procedure. We hire people from different backgrounds such as accountants, CFAs, MBAs and statisticians. However, it is not just about qualifications. People still need to be trained on how the capital markets work, in practice and not just theory.

Above all, we want to hire people with the same energy and drive as our clients.

How do you manage the regulatory requirements?
MA: Confidentiality, compliance, ethics, and integrity are critical to this industry, and we have taken all necessary steps to adhere to the highest global norms and have instilled this discipline in our team.

PA: We create Chinese walls between clients as necessary, for example we could have four analysts covering the same stock for four different clients, but none out of the four will know they are doing similar work.

How can you scale your model when senior management bandwidth is your USP?
MA: We believe we can grow as large as our clients would like us to be. When we started we considered the issue of scale, but thus far it has not been a constraint. In addition to the senior management team, we have built a team of mid-level managers with extensive experience in capital markets.

PA: We have also been lucky to attract some senior finance professionals returning to their home countries after working in the US and Europe.

How do you manage attrition?
MA: Due to the highly specialized nature of our offering, attrition has thus far not been an issue for us. It is currently around 15%. We provide our analysts an environment to work in global capital markets, sitting in their home countries. We are proud to say that of our first hires, most are still with us four years on.

We provide growth opportunities for our analysts i.e. they can do different things within Amba itself. After working for a sell-side firm, they can switch to the buy-side. They can also move from equity research, once they develop a level of expertise, to fixed income and credit research. Some analysts show potential to become managers.

How did you capitalise yourselves?
MA: Our initial funding was provided by the founders, as well as friends and family. In June 2007, we closed our first round of venture capital funding from Helion Venture Partners.

What is your sustainable competitive advantage in this business?
MA: All of us in the management were insiders in this industry and we now do what we know best. We have a singular ability to identify people with the core skills necessary to succeed in this field and transfer this knowledge to them. Our ability to hire, train, manage and retain is what sustains us.

We operate in geographies where there is a plentiful supply of graduates with a strong quantitative orientation and English language skills. We offer a career path with exposure to international capital markets, as well as training and continual education, and that attracts ambitious and talented youngsters with an interest in international finance.