| ESN: collaborating to compete in a pan-European market |
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| Although local insight is still sought after by fund managers, having access to a global network of brokerage firms can offer a competitive advantage to stockbrokers in an increasingly globalised industry. In 2002 NCB Stockbrokers joined the European Securities Network, which has provided the firm with access to a pan-European service in research, sales and trading, writes Alan Foy. |
The introduction of the euro has had a dramatic effect in stimulating securities markets that had previously been obstructed by currency segmentation. Separate currencies meant that many euro-area investors were unable to create a substantial portfolio of equities without exposing themselves to currency risk. However, on January 1st 1999, the euro launch essentially created a new pan-European market, bringing tremendous change to financial markets and investors alike.
Sector-based asset allocation
With this change, asset allocation policies in equity markets at most institutions became sector rather than country based. In equity research, this sectoral based analysis of stocks allowed for a like with like comparison across country borders ‑ a shift which many believed would mostly favour global or pan-European investment houses. Local brokers in each of the eurozone countries reacted to these changes in different ways; some focused solely on their respective domestic stocks while others developed their in-house research capability on European stocks. Local brokers are increasingly competing with global brokers within sectors. However, local insight is still sought after in the pursuit of performance.
An innovative response
One group of local brokers decided to approach the changing market with a more innovative response. In order to provide top quality pan-European coverage, this proactive group of investment banks and brokerage firms created European Securities Network LLP (ESN). ESN is a strong partnership of firms, which are committed to jointly developing and distributing their European strategy and sectoral research by working together to analyse stocks and process orders on European markets. Each partner firm maintains its independence and unique identity while focusing its research mainly on domestic companies, both big caps and small & mid caps alike. Initially founded in 1998 as a loose network of independent firms, ESN has grown in strength to evolve into a strategic alliance of 10 partner firms in 11 locations. ESN provides access to a pan-European service in research, sales and trading. With offices in Dublin and London, NCB is the exclusive Irish and UK partner of ESN.
ESN in numbers
ESN’s common standards of cooperation in equity research have permitted the partners to successfully work together to compete in the pan-European marketplace. This multi-local partnership provides strong domestic expertise with over 130 analysts, 140 sales people and coverage of 800 stocks across 29 sectors. The shared ESN research database, managed by NCB in Dublin, represents one of the largest in Europe and was central to the successful development of ESN. Each of the 29 sectors has a coordinator who manages their European team of sector analysts and strives to select the best recommendations within the sector at all times. The success of this approach is evidenced by ESN’s performance in the rankings and awards; ESN was ranked 6th in Europe for the Annual Extel/Starmine analyst recommendations and estimates in 2004. Our ESN team of analysts provide publication of pan-European sector reports, strategy reports, in-depth company reports and daily updates; ESN estimates to have exceeded 10,000 research publications during the 12 month period May ‘04 to May ‘05. ESN is ranked in the top five of all European brokers in the RQ third-quarter report.
The partnership’s profile
The success of ESN must be attributed to the profile and calibre of each partner firm in each exclusive territory. The 10 firms which make up the partnership are committed to delivering results for themselves as well as their ESN partners. The table provides a brief overview of each partner. NCB’s chief executive, Conor O’Kelly is the current chairman of ESN and he is supported by Giorgio Zancan, ESN’s full-time chief executive reporting to the partnership’s board. As the table illustrates, the partners are strong players in their respective domestic markets ‑ some are subsidiaries of large banks while others are independently controlled.
Pan-European with local proximity
Through ESN, each partner can provide a pan-European service in equity research, sales and trading. The partners benefit from access to a European corporate and investor network including access to every major institution in Europe. Combined with the breadth of a pan-European approach, ESN’s equity research provides the advantage of local insight and timeliness. This is particularly important in the small and mid-cap arena where ESN’s local proximity gives us a competitive advantage over other pan-European offerings. Equally in the large cap arena, ESN’s investment views benefit from each partner’s superior understanding of local economic, political and regulatory developments.
Differentiating beyond research
But the research products are only part of what ESN offers. ESN’s specialist Sales and Trading teams strive to provide the best ‘tailor-made service’, information and execution capability on a daily basis to clients. Furthermore, the marketing support through analyst visits, corporate road shows, seminars and one-to-ones with European companies helps bring the best investment ideas to clients throughout the year. Understandably, the differentiating nature of ESN is well recognised by each partner. NCB’s ability to not only analyse Irish companies on a pan-European sectoral basis but to distribute Irish stocks across Europe is viewed as a key differentiating point for the firm.
Looking forward
ESN’s evolution has witnessed the strengthening of the partnership through the development of research, sales and trading capability over the last seven years. Every day, colleagues from each of the firms are building the ESN partnership. They are constantly scanning for new opportunities and successfully collaborating to compete in Europe. Each interaction in ESN, be that a meeting of the partner firm CEO’s or an offsite teambuilding event of analysts and sales people, illustrates that there is a strong commitment for ESN to continue to succeed and develop. This multi-local partnership is not merely a collection of firms; it is a community of colleagues across Europe which interact consistently to deliver a unique service to our clients. While the value of the ESN partnership is significant, the potential is incalculable. |
Alan Foy is an executive at NCB Stockbrokers.
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