US and UK 'Alpha Capture' Networks Merge

Securities Technology Monitor - 18 March 2011

By Chris Kentouris

Two distributors of trade ideas and research, are merging to form a new “global alpha capture” network that will permit institutional investors and brokers to share trade recommendations.

First Coverage of Boston and youDevise of London each let brokers submit trade ideas to their buy-side clients electronically. The fund managers can then track the performance of the stock picks to the ideas they implemented. If the performance is above average, then it's capturing "alpha."

The new merged entity will have a stronger presence in North American and Europe. YouDevise was launched in 2005 and expanded into the U.S. two years later. First Coverage was started in 2006.

The integration of the two platforms is expected to be completed later this year, with features from First Coverage becoming part of youDevise’s Trade Idea Monitor, the two firms say. YouDevise will also benefit from the additional IT developers and sales staff to upgrade and promote its portfolio management system for funds of hedge funds and their administrators.

The combined company will operate under the youDevise name and be headquartered in London. The merged firm will serve more than 150 institutional investors – comprising hedge funds, traditional money managers and specialist alpha capture funds – and 560 broker-dealers. Many of YouDevise’s clients are global broker-dealers while First Coverage targets small- to mid-sized U.S. broker-dealers.

The combined company will be led by Colin Berthoud and youDevise founding partner Rich Koppel. First Coverage’s chief executive Roland Beaulieu and Commonwealth Capital Ventures’ managing partner Jeff Hurst have joined the youDevise board of directors. About 18 of First Coverage’s employees will join the 65 executives of youDevise.

A syndicate of venture capital firms – Commonwealth Capital Ventures of Boston, GrandBanks Capital of Boston, and JLA Ventures of Toronto – have invested in the merged entity. They were also initial backers of First Coverage.

The First Coverage and youDevise platforms collectively transmit a total of over 2,000 ideas a day, up 60 percent from a year ago, that are based on stocks primarily traded in the US, UK, Europe and Asia.

Alpha capture systems try to cut the fees investment fund manager pay for research while allowing broker-dealers to find new ways to distribute research at lower costs. “The merger makes tremendous sense for our clients who can use the combined network to access knowledgeable counterparts on any scale of stock, in any sector, anywhere in the world, while providing brokers with new ways to monetize their intellectual property,” says Colin Berthoud, founding partner of youDevise.

However, some research analysts question the merits of the merger; it is uncertain whether alpha capture platforms have gained sufficient interest from all buy-side firms such as hedge funds which often generate their own investment ideas rather than rely on broker-dealers.

In addition, independent research providers may not have the deep pockets of bulge-bracket firms to push their ideas to the buy-side. “In the case of a one man shop, can the analyst really afford to pay $100 a month to channel his ideas to his clients or would it make more sense to do the deal directly with the buy-side in the first place,” wrote Integrity Research, a New York based commission management research firm on its website (www.integrity-research.com/cms) on Friday.

However, Berthoud counters that research conducted by youDevise shows that 70 percent of the brokerages contributing ideas to the youDevise platform outdid their respective benchmarks.