International Herald Tribune, Saturday January 15, 2000

By Miki Tanikawa


Independent Research houses do not have a long history in Japan: A country with large, multifaceted financial organizations accustomed to doing everything themselves was not particularly conducive to specialty shops.

It took the Big Bang financial deregulation program that began in 1998 to bring the boutique concept to Tokyo.

Richard Werner, who founded Profit Research Center Ltd. in February 1998, said his idea for an independent research house was a direct result of deregulation. Mr. Werner was previously chief economist of Jardine Fleming Group in Tokyo.

Under the old rules, fixed trading commissions safeguarded profits for almost every company in the financial industry. The commission income was used to pay for all of a securities firm's activities, from sales to general administration to research, without much assessment of the profitability of each activity.

Now, Mr. Werner said, the complete deregulation of trading fees has led to the rise of discount brokers, and these no-frill alternatives have led investors to discover the value of research.

Mr. Werner's company, which specializes in macro-economic research and advises clients on global asset allocation, now counts 25 institutional clients, including the Asia Development Bank and [a leading New York hedge fund].

Mr. Werner said international investors active in Japan needed independent advice.

"If your forecast is tainted, the value of research drops to zero," he said.

Currently, Profit Research provides its services only to institutions but plans to extend them to individuals in the future.

The reason the Internet analyst Hiroyuki Ono decided to go it alone was to get his research up to Internet speed.

A former analyst with Nomura Securities Co., he said that, as a software and Internet analyst, he had to toil along with a small staff when dozens of new companies were springing up and existing concerns that could profit from the wired world were being reassessed by investors.

At Nomura, Mr. Ono said, "the pace of expansion was too slow." So he created E-Research Japan Co., which is dedicated to researching Internet companies. It began operation in January with 10 full-time analysts, and he hopes to add 10 more by March. E-Research wants a partnership with clients, with the notion that research is made "strategic" in the client's business plans. Mr. Ono foresees the take-off of the Internet in Japan creating a huge market. Tokyo, he added, is only beginning to discover the value of Internet plays because the sector is in its infancy in Japan.

Sony Corp., for example, "would be overpriced as an electronics company but not as an Internet play," he said. In the same vein, Ito-Yokado Co., Japan's largest supermarket operator, "would be expensive as a retail chain but undervalued as an Internet company." The company, which controls the 7-Eleven chain in Japan, is planning Internet banking services.

The decision to create an independent research organization was timely, Mr. Ono said, because commissions deregulation clearly raised cost-awareness among investors and brokers. Initially, E-Research will work only for institutional clients.