South East Asia Forum: What the buy side wants

Dec 17, 2018
‘What we’re looking for is good companies run by good stewards at the right price’

Trade wars and the macroeconomic outlook for China and the ASEAN region; lessons from successful heads of IR; IR trends and how you should be reporting around ESG. Those were just some of the topics on the table at Singapore Stock Exchange earlier this month as the region’s IR professionals gathered together ahead of IR Magazine’s annual awards in South East Asia.

Also on the agenda was a Q&A with the buy side, with moderator and IR Magazine editor-at-large Laurie Havelock sitting down with Talib Dohadwala, managing partner and portfolio manager at Integral Capital and Joshua Lee, senior portfolio manager at Bank of Singapore.

Laurie Havelock: Can you tell us a bit about yourselves?

Joshua Lee: I’m from the Bank of Singapore, a subsidiary of OCBC and one of the largest and fastest-growing private banks in Asia. I’m a fund manager and I do multi-asset investments – investments in equity, fixed income and also some FX as well as funds and structure products. And before I took on this role, which is a buy-side role, I was a sell-side analyst.

Talib Dohadwala: Integral Capital is a boutique investment firm set up in Singapore in 2011. We’re a registered fund management company set up by the principals, who [between them] have more than 50 years of Asian investment experience. And the strategy is very simple: it’s a long-only strategy investing in Asian stocks across the region from Greater China, South East Asia and western south Asia, but we invest typically in only around 30 stocks, with a high-conviction approach. We’re really investing in companies on a long-term horizon: typically three to five years.

I’ve been in the industry for 25 years, starting my career at firms like Schroders, Allianz Asset Management and First State Investments, and then eventually became one of the principals who started Integral Capital.

There are a lot of additional pressures in the investment world at the moment, with trends like ESG gathering momentum. How big is ESG here?

TD: I’d start by saying that, actually, our investment process hasn’t really changed that much over the years. I suppose it’s timeless in some ways: what we’re looking for is good companies run by good stewards at the right price – so that hasn’t changed. What has changed, maybe for the likes of ESG, is that those issues have increasingly become a consideration for a lot of funds. We don’t [consider ESG] but that doesn’t mean we disregard it.

I wouldn’t invest in a company just because it has the best ESG ranking, for example. It is a consideration in that it reflects the culture of the company and its long-term sustainability, but before I even get to ESG it’s about assessing the business based on the fundamentals: does it have what I’m looking for? Is it led by good stewards who we think are very capable and – more importantly – trustworthy? If you get the two ticks there, then ask: what price am I paying? 

JL: I agree and would say ESG is not absolutely essential right now – at least in Asia. It’s not really a primary objective and it doesn’t really drive growth in terms of equities, but increasingly it will. This is a theme that’s being affected by regulation so say, for example, there’s carbon credits or regulation governing certain sorts of industries, that in turn affects fundamentals such as your earnings growth and so on. Also, the media is talking about ESG, the public is becoming more sensitive to it and ultimately governments are developing regulations – so it is only likely to grow as a theme.

Mifid II obviously looms large and is on a lot of people’s minds at the moment. How is it impacting things in this part of the world?

JL: Mifid II definitely has a global impact. If one looks at long-only European funds, they also invest in Asia and so ultimately subscribe to Mifid II and I think the knock-on effects are increasing from a commercial angle. Does it make sense for a sell-side analyst to cover small-cap companies if the dollar commission is not there? That means coverage is a problem because ultimately if a small company lists and there’s no broker coverage, how does it get the sort of publicity and depth an analyst can to portray to the market? I think that’s a big problem.

TD: What has happened is that a lot people on the buy side have become very selective about the companies they want to see. So if you’re working through institutional brokers, and they reach out to a lot of the buy-side firms, many may now say no. Some of you might already feel it but the lists are becoming shorter. And that’s partly driven by the fact that the buy side is becoming very selective about who it sees because it’s now almost on a pay-per-use basis.

Following on from Joshua’s point, one of the things we’ve been trying to do is to increasingly engage directly with companies. This started even prior to Mifid II, because we’ve always liked to have a long-term relationship with companies anyway. 

I would also suggest to companies to increasingly try to build your own Rolodex and reach out to buy-side firms directly, and consider working with independent brokers that can use their contacts and perhaps work with you on a retainer. 

Where would you like to see improvements in terms of what companies are doing in the region? And are there any types of events you find particularly useful?

JL: Improve the website – that’s the key thing. There have been several occasions where I have gone to a company website and had such a hard time finding the things I want. The information may not be there, or it’s not up to date or not easily accessible. But as buy-side investors our first port of call is the website so keeping your documents up to date on the website and making it more user-friendly are the most fundamental things corporates should be looking to do.

TD: And try adding webcasts – those are always useful because all investors will have access. With technology these days, you could even go so far as doing virtual reality visits, particularly when it comes to investors that would have to travel a long way to visit you – from the US, for example. And those visits – plant visits or visits to company facilities – are really what give us that deeper understanding of the business. 

Sometimes as investors we find it very useful to be able to see beyond the CFOs and CEOs and go down the line to division heads of particular business lines within the company where there may be something significant happening, so for IR to be able to bring those division heads along to investor meetings and let those people talk specifically about their own space and the kind of trends they’re seeing can be very powerful for us as investors.

JL: I would add that the story is very important. It’s worth remembering that buy-side folks do talk to each other – they will come back from a visit and talk about it with other buy-side analysts and portfolio managers who in turn might get interested.

Other than that, I’d just advise being consistent: consistent emails and consistent communications to your investors in general is quite important – especially for buy-side managers. We have hundreds of companies we look at, if not thousands, and just seeing an email does help. The act of reaching out to your investors or potential investors is quite a powerful tool.

LH: Finally, do you have any IR pet peeves you want to share with the audience?

JL: I would say, if an analyst comes out with a sell call, don’t be too defensive. And if the buy side comes out with some resistance or some views that are negative, focus on being transparent – that will help in the long run.

TD: I don’t want to make enemies out there! But really, being approachable and reachable even when times are tough is very important. And just being as transparent as possible with any issues within the firm, that’s always well appreciated – especially for long-term investors.

 

Sponsors of the IR Magazine Awards - South East Asia

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