Research 'Boutiques' Survive as Investment Iconoclasts

IF it's ornate furnishings that you want in an investment house - mahogany sitting rooms, Ming Dynasty vases, and Persian rugs - then Gerard Klauer Mattison & Co. might seem somewhat rustic.

But Emanuel Gerard almost revels in the Spartan offices of GKM, which are tucked away in an unobtrusive building on Madison Avenue in midtown Manhattan, far from Wall Street on the southern tip of the island.

Gerard Klauer Mattison, members of the New York Stock Exchange, is a "research boutique one of some 25 small-to-medium sized research/trading firms found around the United States that compete with large investment houses such as Merrill Lynch & Co., PaineWebber, or Dean Witter & Co. And GKM is also a case study in not just how a boutique manages to survive against the big players on the investment block, but also how it finds a degree of profitability and recognition along the way. As "Manny" Gerard is q uick to note, overhead is far lower in his cramped, no-frills offices than in the more lavish settings of Wall Street. However, his firm is considering moving to slightly larger quarters. The 30 people or so who work for GKM are scramblers. They work for far less than they might receive in a large brokerage house. With a mix of grit and innovation, they provide a broad range of client services, including helping to bring new issues to market, pure research, and trading. "This firm [which was founded in May,

1989] started with one basic premise," says Mr. Gerard. "We have to make money for our clients. When we can do that, then we'll create a business that's profitable."

Research boutiques are considered the hard-driving idea shops of Wall Street. They have to be to survive, says veteran Wall Street analyst Perrin Long, Jr., with First of Michigan Corporation, a brokerage house. When the stock market periodically goes into a tailspin and larger firms lay off surplus analysts and partners, some of these people launch new boutiques. These firms struggle to compete with older boutiques. Not all survive. Mr. Long says that the number of major boutiques has stayed relatively

constant during the past decade.

Investment houses continue to shed analysts. There are about 2,500 security analysts in the US, compared to around 3,000 before the market crash of October, 1987, according to Marcia Boysen, an official of Nelson Publications of Port Chester, N.Y.

GKM revels in an iconoclastic approach to Wall Street. Institutional Investor magazine calls them "Wall Street's bad boys" because of their willingness to say the unconventional about a stock - even if that particular stock is one that they might have themselves helped bring to market. "The word 'sell' doesn't bother us in the least," laughs Gerard - a word that may well be used infrequently in not a few brokerage houses, especially if they hold positions themselves in a stock. Gerard's position: Tell th e truth about each stock.

In one part of GKM's crowded quarters, research analysts monitor some 15 basic stock sectors. In another section, traders work telephones in front of brightly lit computer screens. There is an area dealing with over-the-counter stocks. And GKM has served as a sales agent. It helped bring to market three new stock issues. GKM may also be an agent on a fourth underwriting, now in the planning stages.

Last year GKM had revenues of about $20 million according to Gerard, up from $8.5 million in 1990.

The firm managed to break even in both 1990 and 1991 and expects to do so in '92. This year, he says, "we'll have a good year," although revenues may be a "tad less" than last year.

Gerard is as much showman as investment-house mogul. That's fitting; he spent a decade in the office of the president of Warner Communications, the multimedia conglomerate.

Gerold Klauer, the in GKM, says that the stock market should continue to provide a promising environment for small boutiques like GLM.

Given low interest rates, he says, stocks remain about the only real option for investors. Low rates should also eventually jump-start the economy, he says. Even if the market does go into a "correction," Mr. Klauer says that GKM would be very candid about advising its 150 or so institutional clients which stocks to buy - or sell.