IS STAYS THE COURSE = CRACKING OPEN CORPORATE REAL ESTATE ITO eMC NM Tce eterna Fe rice, STOCK JOCKS We reveal Australia's best stockbrokers Peete ars eco MICROSOFT’S RISING STAR Steve Vamos Seattle bound Een THE RE -CORPOR INNOVATORS BEYOND THE BUZZWORDS, THIS IS WHAT SUCCESS LOOKS LIKE Exerc nats FORECAST 2007 20 PREDICTIONS FOR SMART BUSINESS: JAMES THOMSON CARBON CAPITALISM COMES OF AGE: AMITA TANDUKAR GLOBAL MONEY HITS AUSTRALIA: DAVID JAMES WHERE GROWTH IS GOING: CHRIS RICHARDSONBEST BROKERS Rob Stanton, Macquaie Secures property analy: More of a global focus! Page 87 35 38 38 a 44 51 32 The real corporate innovators “There is no shortage of discussion but tle ‘consensus ae to what cones tuo innovation ~ and how best to implament it BY GINA McCOLL AND TONY BLACKIE A year of promise Australi Where growth is going BY CHRIS RICHARDSON Climate bon captaam comes of age BY ANITA TANDUKAR Equity (Global money hits Australia BY DAVID JAMES Predictions 20 prediction for amar business BBY JAMES THOMSON Stock jocks Who isthe best stockbroker in Australia? Who are the leader in resarch, dealing, equity copa ‘arkea and decvatves? The East Coles! [BRW Bost Brokore survey rates the raion’s leading stockbroker ad fre. BY JOHN STENSHOLT, KEVIN CHINNERY, ‘CHRIS LARSEN, FOAD FADAGHL, TIM TREADGOLD AND KATH WALTERS Innovation Leadership Summit The econamic and community cas for leaders to niroduce policies and intatives to improve ‘Ausralan innovation oonfrmed a the thir 'BRW Innowaton Leadership Summitin Melbourne BY TONY BLACKIEFEATURE (BEST BROKE Toyo an ea N= etna Se be oe ce Teme raeFEATURE (BES BROKERS FAIL FUNDS TEST FUND MANAGERS ARE NOT BACKW, /ARDS IN EXPRES SING AN OPINION IF THEY FEEL THEY ARE NOT GETTING VALU! E FOR MONEY. ‘Fund managers have delivered ascathing crkique of stockbroker ables in his year's edition ofthe ARW East Coles Best Brokers poll They say broker research is usually irelevane when making investment decisions, of lite value when assessing che iming and strength of downturns and that broker independence hhasbeen compromised on many occasions inthe past year. ‘Individual fund managers were asked question about ther elatonship wth, brokers, Most striking were the comments regarding the challenges facing the broking industry in particular the dificuy of saying relevantin ther atemprs to meet the demands ofthe inittions. Find managers complain that brokers are churning out research notes that tend tbe focused onthe short term rather ‘than producing original and though esearch, In a series of anonymous responses, fund managers were direct about sockbokers. One response was “No ane docs real research any more. Ii] jus reiterating what company management says.” Yet fund manages say that ‘their complains have fallen upon deaf ears for several years, and tha there dhs been lite fany, improvement in che quality of broker research. The head of Australian equities at Schroder Invesument Management Australia, Martin Conlon, say: "really hss not noticesby deteriorated inthe shot term. Weve ‘een making thse sorts of arguments for about he pas five years ‘Not all fund managers are critical though. A porilio manager for Ausbi i feat Rank Howse Rank House 1 Macquaio 1 UBS 2 us 2 Phone 3 Goldman Sachs avere 3 Macquae SDeszene 4 cheoup 5 Ment nen 5 Mera neh 8 Oger 6 Galdnan Sect shee 7 Monge 7 NANO 8 Morgan Saney 8 Crest subse 2 ANAM 9 Daseohe 10 cred Suisse 10 Margin Say Dexia, Jon Grace, says: "We have not expressed that [rial] view fen uilise broker reearl [and] we don'thaveany issue wit teal. Fund managers ay the quality of the research isnot necestarlly an isue the bigger funds, as many have large in-house research teams that are able do indepth analysis, These firms tend to use broker esearch as a safery net, rather than relying on it tobe a big pat oftheir decision-making proces. Butthe ris of aller, botiqe nd manager isa potential problem, asmany havea greater reliance on broker research, Yet fund anager say the aby to deliver only servies they want i big issue for che future for brokers. As one fund manager says: “They need t provide rea insights which are decoupled from the incentive to stimulate brokerage" "ettherearemaay fund managersthatsimplyacoeptthatanaystindependence is often compromised, Several respondents said there was lite that eould be done to ensure that brokers were truly independent. One fund manager said: “Corporate deals and research from the same brokers obviously a primers.” ‘Not surprisingly, most fund managers claim to have litle reliance on stockbrokers’ research, When asked how much they relied on the research only about 12.5 per cet of respondents answered“ lt", compared with 20 per cent Tastyer.Andhalf ofthe respondents sy they never find analyst research helpful ‘when assessing the time and strength of stockmazket downturns WHAT THE FUND MANAGERS SAID \What do you believe i the greatest challenge facing the broking Industry asi attempts to meet the demand of institutions? * Given compary disclosures, analets need to provide mors thought provoking research fo act a caayets. * Tao much focus on "maintenance esearch. + Neo to cover a broadr range of stocks (veri onthe bigger stocks). “Not enough orginal thought, too much regurgitation of company news. How much do you rely on analyst research? “Alot. They have resources we dort avaye have, “Alot for industry background, not at al for rocommendations. "Abit rice movements beyond the shor term are dificult for brokers. “Tos degree. A good nalts always very good value. What ate the benefits of using independent research houses? "Tend tobe more focused on insights and research. "Moro tored relevant epoarch “None, they cost money tat can be better spent on brokerage. ‘Hae found them to be much less cent-focused.mativated. timely and useful than brokars Wil not be using them inthe future. Have you seen instances inthe past year where you belive analyst Independence has been compromised? ‘ Numreus occasions tis always necessary to know the house broker, ‘ad to viow the research conclusions in that context + Yes, but more instances of stpily and inexperience, which ae of ‘vast greater importance to invectment outcomes than malleasance,UBS HAS COMBINED RESEARCH AND TRADING EXPERTISE TO EMERGE AS A DOMINANT FORCE IN AU: LST AMAN EOC} [UBS has emerged as Australia's top overall stockbroker inthe 2006 East Coles _BRW Best Brokers survey ranking, a top ofthe board in equity research, dealing, derivatives and equity capital markers ts research teams ‘were particulary dominant nthe poling, aking out noes than 10 ofthe 21 Industrial, commodity and macro-economic sectors, 'UBS's grip on the research secor extends to individual analysts as wel, with nine ofthe top-rtedindividel analyst the Est Cole survey uniquely takes account of both individuals and teams ~ in individual industrial and commodity sectors. The top ranking for research matches UBS’ share of the equities trading smazkets, which in the year to the end of November it was ao on top of, just ahead of Macquarie and Gtgroup. So does this esearch dominance come from, hiring individual brilianee, or does UBS claim seystem that can ital of ts teams across the board? The answer, according to che head of Australasian equities Gerard Sau, appears to be abit of both, "We have hired «lot of high-profile people. They ‘vant to join, and we want them. But there is alzo huge emphasis om research here. UBS globally covers mare stocks than anyone, Others dont have that strength across the board. I's marriage of «good core and some key people in research" Satur aye Over the past yea, UBS has also reorganised iself to focus more on erivatves, partly because finding overseas investments forts Australian cen {a relatively small but fas groving market forthe bank. (One thing the East Coles polling overwtelmingly found, however, is chat nd managers claim not o rake a loc of notice of research provided by brokers ‘who try and sell them equity investments. Research is highly valued by fund ‘manager, it seems, so long sit thei ov. ‘Whether such public responses are ineviable or not, Satur diplomatically points out that the approach ofeach fund manager is differen, “f you have the best researchers, then fund managers will liten to them. The frsrate researchers are raked that way because they can make money” he say, hinting that if the research resource was ever taken away, they might be saying something different. ‘The sted invesement markets slso under some pressure om private equty _roups who go directly to buy whole companies rather than just accumulate their stocks. "ie creates two fair values fr each stock," Sarr says. “We show fund managers aretum overa quarter o half-year, and private equity shows icover five years ‘The private equity phenomenon belongs to a particular time, he suggests. “When debe is cheap and seet values ae noc plummeting, wil work, Weave a very stable environment right now, where interest ates arenot volatile soit isworkable” Setur ‘Should corporate managers be paying attention to what equity analysts say sboutthei companies? Clealy noone wantsa"se tag puton thei stock, butdo the investor le rules of equity analysts also provide insight fr people actaally runing thotecompenies? “Tecan show them tae sommes managers ere out of touch with what the mazket thinks, When companies come tothe mazket for money, then they need to know how the marker views them,” Satur ay. Capa raising i the other main function ofan investment bank, with UBS ‘ttkng out second place in the equity capital markets category. There is litle doubt thatthe finest hour for UBS came with the $15.5 bilion Telstra oat in November, a oncein--lfeime deal which produced & record day forthe UBS broking business, 'UBS was join lead manager, along with ABN Amzo and Goldman Sachs Were, but scoured fr 1 per cent of che otal trading in Telstra shares on the opening day. ‘The joint head of equity capitl markets, Guy Fowler, sad the “structure of ‘the [Telstra deal was very smart. rwasanendorsement that although twas three-way deal ~ from scoping to structure to markering we distinguished