Field guide to investors
Stock surveillance is vital for firms facing shareholder proposals or upcoming merger votes as a way to guide proxy solicitation efforts. But it also has a place as a day-to-day tool to manage investor targeting.
IROs spend much of their time trying to get a good view of their actual and potential shareholder base. Market intelligence firms say the task has three parts: accurate share register analysis, institutional background information and comparative peer investment analysis. With tens of thousands of institutional investors and a flood of cross-border investment, IR teams may find it difficult to keep the players straight.
That’s why surveillance firms keep dossiers on the funds, with such information as briefs on their investment strategy, top buys and sells, and peer ownership comparisons. ‘At the top level, it is sort of a Who’s who of the capital markets,’ says Charles Hamlyn, business development director with London, Sydney and Hong Kong-based Orient Capital.
The investment profiles form the basis of some matchmaking. ‘From a corporate standpoint, our products are used to arrange meetings,’ says Peter Juhng, a senior partner with market intelligence firm Illios Partners. ‘If you are planning a roadshow and have meeting requests, you can read up on the companies.’
The information helps identify less visible and accessible prospects. ‘IROs know their top investors very well, but this may help target some institutions not in your top 20,’ says Hamlyn.
There are many reasons for IROs to rely on broker-led investor targeting but, unless they put the brakes on corporate access managers, this method can lead to too many meetings with investors that are a bad fit. Surveillance firms are asking IROs to share the broker-generated itineraries with them before they go on the road with investment banks as a kind of check. ‘It acts as a bit of a counterbalance to companies that otherwise would be guided into a particular set of meetings,’ Hamlyn says.
Using surveillance to profile an investor also helps smooth meetings. ‘The greatest encounter a CEO or CFO can have with an investor is one in which he or she actually knows what the investor wants to hear ahead of time,’ says one IRO, who wishes to remain anonymous. ‘Is it interested in cash flow, margin expansion or the top line? If you brief the executives on what the investor wants before you go into those meetings, it creates a tighter connection.’
The basics of an investment profile include some fund history, holdings by markets, global offices, manager biographies and source of funds. Surveillance firms also tie in profiles with contact management software so IR professionals can track interaction with the investors.
Compiling the dossiers takes digging and patience. ‘There are several ways we get our data,’ Hamlyn says. ‘There are vendors that provide public ownership data. We also run analyses on a universe of 450 share registers, and conduct our own research, led by a former fund manager.’
Many investors see their strategy as proprietary and shun surveillance. ‘Hedge funds are harder,’ says Juhng. ‘Many are super-secretive, but our research team has good information and connections that open a lot of doors.’
Providers contend with the problem of information overload by heavily editing the presentation. Clients of surveillance firms can also take control of the databases, and strip out the bits they want. ‘Our aim is to put not more or less than what the IRO or board is looking for,’ Hamlyn says. ‘We want to avoid heaping reams of data on them.’
IROs may find a logic to using advisers who can slash their administrative burden and provide a soundboard for targeting and profiling. ‘Because of the independence and empowerment of this type of data and its IR-specific focus, I can see a coming of age for this type of product,’ Hamlyn says.
These funds are fictional, but here’s a sample of the type of insight offered in a surveillance firm’s investment profile.
Episcopal Pension Group
This $6 bn fund gained $200 mn in value last year, mostly from fixed-income performance. The portfolio manager is cloning the investment strategy of the Ivy League Investment Fund: with underperforming private equity assets, he’s shifting back into stocks.
After his former $4 bn hedge fund lost half its value in mere days, this fund manager returned what he could to investors. Now he’s back with a smaller capital raising focusing away from structured credit investments toward growth stocks.
Each day there is a ‘sheet of shame’ posting the fund’s 10 largest losers on a cumulative basis. Long positions are reduced if the share price trades more than 25 percent above the 45-day moving average. Looks for shorts where management misguides investors.