In the world of finance the more money you have the sooner you get access to information. For the uninitiated, this is illegal. The reality is that this has been going on since the beginning of time. This is nothing new, and is how many financiers make their living amongst the top earners in today’s wealthiest societies.
The new york times has just released a fore-head smacker of an aticle cementing the reality that large hedge funds, who live and die on analyst predictions, are getting earlier access to critical information from analysts whose opinions hold tremendous power when it comes to pushing the market one way or the other.
BlackRock, which owns several large hedge funds, is one of the larger information culprits. Wall street analysts, the guys reporting on the health of companies and whose words are followed like those of an oracle by traders, are paid commision from guys like BlackRock who utilize their services to help guide investments in their funds. Wouldn’t you know it, when you’re BlackRock and have several large hedge funds worth billions of dollars you tend to pay a lot to analysts for their information services spread out between many markets that you need analyst information for. And that’s fine, as well as perfectly legal. The problem is when analysts feel the need to keep their best customers like BlackRock extra happy, then the bad stuff starts to hit the fan.
BlackRock is the parent company of just one of several large hedge funds getting access to information from analysts before the analysts release their information to the public. This happened in plain view most recently with the IPO of Facebook. Some of you might remember how some wealthier clients received information from analysts regarding the negative view they had of Facebooks prospects, and would be reporting on and influencing markets with, soon after the company was slated to go public on NASDAQ. This means that wealthy clients, by simply being in the vicinity of influential stock analysts, got wind of their reports early and dumped their stock. This means that they cashed out early and left everyone else to bleed cash. The reality is that this is how the markets work, have worked, and will work. Play at your own risk.