Cutbacks at investment banks are bringing a new wave of sell-side analysts into IR – but not everyone is happy about it, finds Tim Human
Right now investment banks are cutting back – and when they do, sell-side analysts start to look for new roles. That in turn leads to a bump in the number of sell-siders crossing over into investor relations; the path from company follower to evangelist is well trodden. But the most recent influx has left some IR incumbents unnerved. They wonder whether employers are properly taking into account the full range of skills and experience an individual needs to work in investor relations.
‘There is a panic button that gets pushed when the IR profession sees people with sell-side backgrounds getting some of these big jobs,’ observes Smooch Repovich Reynolds, executive vice president and global leader of the IR and communications practice group at DHR International, an executive search firm.
One situation that got the industry talking recently was Alibaba’s record-breaking IPO last year: the e-commerce giant brought in Jane Penner from Google’s IR team, who boasts sell-side and in-house experience on her CV. Whole sectors have also caught people’s attention. An observer reports that several sell-siders have gone directly into head of IR roles at larger companies within the US insurance sector over the last five years.
In a way, IR is a victim of its own success: the profession continues to grow in sophistication and regard, which acts as a further attraction for investment bankers considering their next move. Looking at all IR positions, one in 10 IROs say they were on the sell side before joining their current company, according to research conducted by IR Magazine in partnership with Taylor Bennett (see Before IR, left).
The concerns of some in the industry look to be overblown, however. Recruiters are quick to point out that the case of a sell-sider walking directly into a head of IR role at a large or mid-cap company is extremely uncommon. Sure, many analysts think they can pull it off. After all, analysts need a healthy ego to get by in their line of work. But most management teams view it differently.
‘There are examples where very experienced sell-side analysts go straight in as head of IR,’ says Debbie Nathan, principal consultant at London-based search firm EMR. ‘But it’s one thing to know how the capital markets work, and another to lead the entire IR function.’ Typically, sell-siders go into IR teams as a number two, she explains, often at the request of the new hires themselves: ‘A lot of the time, they want to support a head of IR who has had previous exposure to the full breadth of an in-house IR role.’
Reynolds concurs. ‘I don’t believe there is a high percentage of sell-siders getting the top investor relations jobs right out of Wall Street – certainly not at the large caps,’ she says. ‘I think at micro-caps, or maybe small caps, they might be able to, depending on the industry. My best recommendation for them, however, is that they go to work for a large cap in a team of three-to-five IR practitioners and learn the other side of the craft.’
The crossover
There are, of course, many transferable skills between the sell side and IR, from financial modeling to capital markets know-how. Just as clearly, however, there are key pieces missing. ‘IR is a lot more complicated than just knowing how the Street is going to react,’ says a Canada-based IRO with 20 years’ experience. ‘You are a trusted adviser to your executive team. You need to know how to build relationships. There is a lot of grind in IR, a lot of nitty-gritty detail about having to manage events and other projects.’
She adds that the cultural shift between being an analyst and being an IR practitioner will not suit all personalities. ‘You do find with some of those on the sell side that their franchise is themselves,’ she points out. ‘Whereas in IR and within a company, it’s never about you – ever! It’s about your executives.’
For Reynolds, the key gap between in-house IR and the sell side is that sell-siders have not worked as executive coaches, helping to frame management’s message to the buy side.
‘They need to be able to take the chief executive or CFO aside and say, 90 percent of what you just said was great, but 10 percent of it undermined your message,’ she says. ‘That coaching element is critical. Can sell-siders learn it? Sure. But they need to get some experience with it and learn from a seasoned IRO – this is a critical area of experience if a professional wants to ultimately become part of the top 10 percent of IROs globally.’
The central message from recruiters is that a lack of sell-side experience doesn’t rule you out of the best IR jobs. Only a handful move directly into plumb roles. And while former analysts with in-house experience become very strong candidates, they are matched by others with financial backgrounds in other areas, such as corporate reporting or accountancy.
Anastasia Pittas, Nathan’s colleague at EMR, imagines a scenario where you have a former accountant turned career IRO versus an analyst keen to move over. ‘The chances are the person with the IR experience would get it – maybe not all the time as there is a split camp on this, but many clients consider this a safer option in an environment where the candidate supply is wide,’ she concludes.