Information matchmaker looks beyond Wall Street

Financial Times

June 01, 2016

By Robert Cookson

Expert network company GLG has a new strategy on customers

When Alexander Saint-Amand was 19, his mother was diagnosed with idiopathic cortical atrophy. The term was used by doctors to mean that her brain was shrinking but they did not know why.

Although Mr Saint-Amand did not realise it at the time, the tragedy would shape his journey to become chief executive of Gerson Lehrman Group, the world’s largest expert network company, which acts as a matchmaker between professionals — such as fund managers seeking an investment edge — and 425,000 industry experts who can answer their questions.

“During my senior year in high school she was basically fine and then by Christmas break in my freshman year [of university], she didn’t really know who we were,” the 42-year-old recalls matter-of-factly, speaking at the US company’s London office.

With his mother’s mind deteriorating, Mr Saint-Amand was desperate to find out what was wrong. In 1998, while still at university, he had a chance to search for answers when he started working part-time for GLG, which had just been set up in New York by Thomas Lehrman and Mark Gerson.

Then, GLG was a publishing company that produced sector-specific reports for investors. Mr Saint-Amand was hired as a reporter and dispatched to a neuroscience conference to produce an article about the latest medical breakthroughs. While there he was able to quiz some of the top brain experts about what might be wrong with his mother.

Speaking with the scientists was “incredibly satisfying”, Mr Saint-Amand recalls, even though it would be many years until his mother was conclusively diagnosed with Alzheimer’s disease. The experience also sparked an epiphany about GLG’s business model: rather than produce ponderous reports for investors, why not connect them to the experts directly so that they could home in on the precise information they were after?

“Learning from other people in a one-to-one or small group setting is the most powerful way of learning, and it’s much more scalable than you might think,” says Mr Saint-Amand.

Mr Gerson and Mr Lehrman saw things the same way and quickly reinvented their strategy for GLG as an elite service for matching Wall Street investors with outside industry specialists, including business leaders, scientists and academics. GLG has grown fast and forecasts that its revenues will rise by 15 per cent this year to $400m.

Clients pay GLG an annual subscription to arrange consultations with experts through face-to-face meetings, online messaging or, most commonly, over the phone. It costs about $100,000 for a group of four people to access the network for a year, while the heaviest users pay millions of dollars. Experts in GLG’s network can earn up to $1,000 an hour for a phone call.

Mr Saint-Amand says customers use GLG to answer esoteric questions such as, “Why don’t people eat this specific kind of dumpling in Japan?”, or “Who are the most influential people when it comes to safety on oil rigs?”.

However, GLG has long been dogged by suspicions that some customers use it to obtain confidential information.

In 2014, Mathew Martoma, a former fund manager at SAC Capital, the hedge fund, was sentenced to nine years in prison for what prosecutors described as the most lucrative insider trading scheme in history. Martoma had obtained non-public information about an experimental drug for Alzheimer’s that was being developed by listed companies Elan and Wyeth. Using this information, he placed stock market bets that made $275m.

GLG had introduced Martoma to Sidney Gilman, a neurology professor involved in the Alzheimer’s drug trials. The company had paid Dr Gilman more than $100,000 for meetings with Martoma, but it was not charged with any wrongdoing.

“We had set many rules for that interaction that both the expert and [Martoma] had broken,” says Mr Saint-Amand.

With a whiff of scandal in the air, GLG has in recent years taken steps to beef up its compliance systems. It employs 50 compliance professionals out of a global workforce of 1,300.

“We’re very, very focused on putting in place a framework in which people can do good,” he says. “If you want to do something bad or talk to someone about things you shouldn’t, this is a really bad place to do it.”

While GLG does not record telephone calls or actively police its customers’ conversations, it does provide tools for its clients to do so. It also provides “rigorous training” for its expert consultants about what kind of information they can and cannot provide.

Sanford Bragg, a principal at Integrity Research, a consulting firm, says that GLG is one of the most reputable expert networks. That has become a key selling point for the company after the US crackdown on insider trading in recent years, which forced investors to pay much closer attention to compliance issues.

GLG’s revenues dipped after the 2008 financial crisis as some of its customers, such as Lehman Brothers, went bust or sought to cut costs. Many other clients then stopped using expert networks because of concern about falling foul of insider trading regulations.

But the company is now once again growing fast. GLG’s revenues rose 15 per cent to $350m in 2015, as it expanded overseas and signed up an increasing proportion of customers from outside the financial sector.

These days, about a third of GLG’s revenues come from non-financial companies, including GE, the industrial conglomerate, Cisco, the technology group, and Elsevier, the scientific publishing business. Management consultancies are particularly heavy users of the platform.

GLG does not disclose its profits, but Mr Bragg estimates that on average the company and its competitors — which include Third Bridge, AlphaSights, and Guidepoint — typically make a net profit margin of about 20 per cent. Mr Bragg says that “barriers to entry to the expert network industry have gone up dramatically” in recent years because of increased compliance demands.

Last year, SFW Capital Partners, a private equity firm that specialises in information businesses, invested $212m in GLG at an enterprise valuation in excess of $700m. Mr Saint-Amand says GLG, which has offices in 12 countries including in London, Tokyo and Beijing, is developing new services for clients as it seeks to disrupt other information businesses, such as research providers and conference organisers.

“We see the opportunity to scale one-to-one learning as being much bigger than people might realise,” he says.