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May 31, 2005

Spotlight on New York

Some deep digging is done to find out what makes New York investors tick

New York City is the equity center of the universe, home to the world’s largest stock exchanges and wealthiest buy-side institutions in terms of equity under management. For most IROs, whose function is to attract investor capital, New York is a must-visit destination.

New York’s buy-side manages some $2.57 tn in equity assets, which accounts for 22.3 percent of total US equity under management. The city also has some 1,249 buy-side institutions, which collectively employ around 2,000 portfolio managers, and there are around 6,000 sell-side analysts here, according to CapitalBridge.

This city is also one of the few places in the world where meeting with hedge funds is worth senior management’s time, as many take long-term positions in companies. ‘Once you have determined that investors are interested in meeting with the visiting company, you can easily spend three or four days doing meetings in New York,’ says Marisa Jacobs, vice president of corporate communications and investor relations at New York-based Claire’s Stores.

IROs planning a roadshow stop in New York benefit from knowing that investment philosophies here vary extensively. ‘New York’s [investment community] includes growth investors, value investors and everyone in between,’ notes Mark Aaron, vice president of IR at Tiffany & Co in New York. ‘IROs coming to New York should understand their audience and know who might find their stock appealing.’

Knowledge is power

Indeed, knowing your audience is key to holding a successful roadshow in New York. ‘Before meetings, I always research the institutions and individuals we will be meeting with to learn their investment strategy and the metrics they consider most important,’ says Jacobs. ‘I might also ask our stockwatch firm for information about an institution’s trading patterns.’

Eric Wiegand, director and portfolio manager at Credit Suisse Asset Management in New York, describes the different screening methods his firm uses to identify interesting stocks: ‘We use several quantitative tools to help refine our overall search. And we also rely on our analysts to provide informed conclusions and develop particular insights that, we hope, are differentiated and help us form our investment thesis.

‘From the quantitative point of view, we look at how a company is operating, whether it is experiencing improved operating results, or potentially deteriorating operating results. To evaluate this, we look at such figures as the return on equity and the return on incremental invested capital as a measure of the inflection point for the operating results. We are also very mindful of valuation as well as how the markets view the current prospects for the shares.’

New York portfolio managers often rely on in-house analysts to conduct peer analysis. ‘We use analysts who are responsible for a particular industry to compare companies across their industries, and potentially across an economic sector, to identify the most appropriate opportunities,’ adds Wiegand.

When in New York, assume all the quantitative information on your company is known already and that investors are using one-on-ones to gauge senior management’s credibility. Expect investors to ask highly knowledgeable questions, especially dealing with company-specific or sector issues.

‘The New York audience is professional and very polite, but it will ask questions it thinks are not being addressed by the management team,’ comments Joele Frank of New York-based IR firm Joele Frank Wilkinson Brimmer Katcher.

The local buy side will be well informed on the issues affecting your company’s industry. Michael Scotto, large-cap equity manager at Citigroup Asset Management in New York, says his firm sometimes uses third parties for information on specific industry matters. ‘We sometimes use the services of particular research firms to help us talk to companies in certain fields,’ he explains. ‘For example, when dealing with the medical field, we will hire outside consultants to interpret typical drug situations. Or, if there is a legal situation with a company, we will hire an outside law firm to give us a legal interpretation of what is happening.’

Tough crowd

It’s vital to give straightforward answers to tough questions, as New York investors are savvy at detecting convoluted responses – and some can see the positive side of negative news. ‘What frustrates us is that senior management tends to sugarcoat things,’ notes Scotto. ‘Unfortunately our industry is very short-term-oriented, so people overreact to bad news, where in many cases bad news can be an opportunity.’

New York is one place where getting through an entire presentation is almost impossible. New York investors often prefer to engage in dialogue with senior management rather than sit through long presentations of information they might already have. Expect meetings to run for about an hour, with 20 minutes devoted to a formal presentation and the rest to questions.

The local buy side does a lot of peer analysis so senior management needs to know how to sell the company against competitors. ‘We get a lot of questions about our competitors, so that is always an area you have to be prepared to address,’ says Jacobs. ‘Firms here are always evaluating the company they are meeting with against their competition.’

Weigand offers some advice on how senior management can help investors form a distinguished opinion about their company. ‘Senior management can be very useful in educating us on the business and the markets the company participates in, who its competitors are, what the firm’s particular stress points are, what the points of leverage are within the firm’s business model, which types of opportunities management expects and what concerns it has,’ he notes.

The idea is to have senior management come across as knowledgeably as possible about its business and its differentiating opportunities. ‘We like to have a sense of the capabilities of management and many times we will meet with the competitors of the companies we hold, for verification and credibility reasons,’ Weigand adds.

Planning the itinerary

IRO should come to New York at least two to three times a year, and senior management should visit at least once a year. The common practice is to start the day with a group meeting around 7:30 am prior to the market opening so more investors will attend. This should be followed by five or six one-on-one meetings at the institutions’ offices. Dinner meetings are frequent in New York, but keep in mind that investors don’t just want to be wined and dined – they want to talk business.

Buy-side and sell-side firms in New York are all within close proximity of each other in the downtown and midtown areas. It’s best to schedule a bunch of back-to-back meetings in midtown and then go downtown, or vice versa, so that management doesn’t spend all day traveling up and down the island of Manhattan.

Riding the subway is easy but not very practical during the summer, as stations tend to get super-hot. It’s better to hire a car service, which allows for some debriefing time in the car when traveling between meetings. Because there can be some heavy traffic in the city, allow 30 minutes’ traveling time between uptown and downtown.

Doing well in New York involves preparation. If you are well prepared, your efforts will likely be rewarded. After all, if your IR strategy can make it here, it can make it anywhere.