THE ISSUES Business
workforce by creating 500 jobs in Canada. In Asia there is the dominant Japanese player VisasQ (VQ), Singapore’s Lynk Global, and Capvision, which was founded in Beijing in 2006. Industry-specialist networks have entered
the fray such as the Health Expert Network, the Biotech Network and Candour, which concentrates on the energy sector, along with software-driven players such as DeepBench, which focuses on transparency, proSapient,
Techspert.io and NewtonX. While almost all players are privately held, VisasQ listed on the Tokyo Stock Exchange in March 2020 and announced in August 2021 that it was buying the considerably larger Coleman for $102 million in the hope of becoming a global force that might eventually overtake GLG. Capvision has also fi led papers to list on the Hong Kong Stock Exchange, with most analysts agreeing that Asia is the region with the greatest growth prospects. Last year saw a fl urry of fundraising, led by Atheneum taking $150 million from investors and Lynk raising $24 million.
T
he industry’s growth has only been possible because of its success over the past decade in coping with the compliance challenge of ensuring that the ‘inside knowledge’ and ‘edge’ sought by clients does not stray into insider trading and illegal disclosures. GLG faced a potentially fatal crisis over the issue in 2012, when information disclosed in meetings it
had brokered with an expert on Alzheimer’s drug trials led to criminal charges and a nine-year jail sentence for a trader from the Wall Street hedge fund owned by billionaire Steve Cohen.
Cohen is widely seen as the inspiration for Bobby Axelrod, the ruthless hedge fund boss in the TV show Billions. The show’s writer, Andrew Ross Sorkin, had dealt with Cohen as a reporter for the New York Times and described the early insider trading charges related to expert networks as a ‘Eureka moment’ for his creation of the show. Both Cohen and the fi ctional Axelrod are former golf club caddies who hired psychiatrists to motivate their hedge fund traders and repeatedly delivered 38 per cent returns on $50 billion of assets under management, earning personal fortunes of $10 billion. The Billions plotline often revolves around the quest by Axelrod’s traders for inside knowledge or ‘ideas’ on which to trade, and the information that Cohen’s real-life trader Mathew Martoma got from GLG-sourced medical expert Dr Sidney Gilman led to a scandal that could have destroyed GLG and other expert networks. Dr Gilman was involved in a much-hyped Alzheimer’s drug trial that was about to report disappointing results. He said in court that the information ‘just slipped out’ during one of the 42 chats GLG brokered between him and Martoma. Cohen’s funds dumped their heavy investments in the relevant companies almost overnight and instead bet against the stocks, netting
hundreds of millions of dollars in what prosecutors called the most profi table inside- trading scam ever uncovered. ‘There was probably a 90 per cent chance that that episode would kill the entire industry,’ says Mitchel Harad, who still takes expert calls through GLG and other networks and has studied the industry closely. ‘What actually happened was in the other 10 per cent [of possible outcomes], because that threat forced them to really get their shit together, and it has made it a much stronger industry. They now layer on so many compliance services that it can create a lot of competitive advantages and it has actually allowed networks to charge more and fatten up their margins.’ Most networks are careful to reassure clients that they have minimised legal risks; GLG’s prospectus says it maintains a 50-strong compliance team among its 2,300 employees. It also refuses to arrange interviews with experts who currently work at a fi rm being researched, and makes its experts confi rm in writing that their conversations will not breach any confi dentiality commitments to their employers or any other rules. Conversations can be recorded or listened to by compliance offi cers and experts are given annual online training on what constitutes information that is confi dential, actionable and therefore illegal to share. When fi rms including Citigroup and the Applebee’s restaurant chain have asked GLG not to use their employees as experts, the network has agreed to leave them alone. In the ‘risk factor’ section of its prospectus,
GLG conceded that there remains a danger that clients could trade on the material non- public information held by its experts, and Brian Wallins of SIA says that is still a ‘delicate’ area despite ‘all the additional steps GLG has taken to protect themselves from those kinds of exposures’. ‘It’s just hard, because once the call is set up and two people are speaking there’s no way of really tracking what’s being discussed,’ he says. ‘But is GLG responsible for that at that point, after they have kind of covered their legal bases? I guess that’s more of a legal argument.’ Harad says his 200-plus expert interviews
have often touched on market-sensitive issues but he has not felt pressure to share
CLARE MALLISON
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