Corporate access moving to direct model post-Mifid II
Three major pieces of analysis shared with IR Magazine on the impact of Mifid II reveal how trends are taking shape and shifting activity.
The latest research from UK firm ingage looks at the changes in behavioral trends and market practice resulting from the new regulation and reveals that, as a result of Mifid II, 91 percent of respondents say more institutions and corporates will arrange meetings directly – providing a very clear insight into how the world of meetings and corporate access is going to change.
Michael Hufton, managing director of ingage, tells IR Magazine: ‘The numbers underpin what we are starting to hear from our clients and see on the ground. Corporate access is moving toward a direct model and this empowers IR teams to create deeper relationships and get better information, directly from the buy side.’
When asked who should pay in the new ‘unbundled’ world – the corporate or the institutions – the reply is a categorical 92 percent citing ‘both: it is clearly a necessary function for each side’. On this, Hufton notes: ‘Both corporates and investors are strongly averse to paying all the costs of corporate access, but there is broad acceptance of a model that shares the cost between all parties.’
Taking this on, Ipreo’s Corporate Access Survey 2018 reveals that a majority of both US and non-US respondents either anticipate or have already experienced a fall in sell-side research, a trend cited as a result of ‘unbundling’. Nearly half – 46 percent – of respondents anticipate a decline in sell side-sponsored events offered to them, but only 2 percent have already experienced this.
At the same time, approximately half of respondents expect no change in the frequency of direct outreach from the buy side when organizing events. For those who do anticipate change, however, respondents expect buy-side direct outreach to increase rather than decrease by a factor of 10 to one.
The report also finds a downward drift in the number of one-on-one meetings and participation in investor conferences for both US and non-US issuers across most industries, as well as – crucially – an increase in IROs taking the lead in investor events as management participation declines.
And a significant majority of issuers continue to use sell-side banks to organize corporate access events but issuer satisfaction remains tepid, with only one in five respondents reporting high satisfaction.
One of the main discussions around Mifid II is how asset managers will choose to pay for sell-side research, which can no longer be bundled with trading fees in Europe. The report therefore observes: ‘While US institutions are not subject to Mifid II jurisdiction, several large global asset managers have adopted one payment protocol for all of their regional entities, and most of these managers are electing to absorb the cost of research rather than charge their clients piecemeal.’
Commenting on this, Brendan Fitzpatrick, director of analytical services at Ipreo, says: ‘Given the timing of the survey, those polled would not yet have been exposed to the full effects of Mifid II. Based on this study, it appears investor conferences have been falling out of favor for several years, and Mifid II could impact investor appetite to attend.’
Indeed, management participation in investor events has shown a steady decline over the five-year time frame of the report, notwithstanding a partial recovery from historic lows during 2015.
‘Management participation in events has fallen gradually,’ Fitzpatrick adds. ‘Management teams continue to focus on high-priority events, while reducing those viewed as potentially less useful, including certain conferences and international roadshows.’
In a further indication of changes during the last 12 months, consulting firm Phoenix-IR’s CorporateAccessNetwork reveals it has been receiving, on average, just over 100 investor requests every day: a 43 percent increase on the prior 12-month period.
‘Crossing the 100,000-request threshold is a nice milestone that vindicates our open approach to enable all institutional investors to connect with all public companies via Phoenix-IR’s CorporateAccessNetwork,’ says Adrian Rusling, partner at Phoenix-IR.
On the CorporateAccessNetwork to date, 1,200 institutions have made requests to meet with 2,500 listed companies – 50 percent in North America, 45 percent in Europe and 5 percent in the rest of the world.
Rusling adds: ‘Investors really get the new Mifid II environment and have been adapting rapidly to the new rules. Companies are trailing behind investors for the moment, but the smart ones are catching up fast.
‘I was, however, surprised to hear of one company recently asking an investor that contacted it directly to redirect its interest through a broker. There’s always someone who just doesn’t get it. Going forward, we expect the pace of direct investor interactions with companies to continue increasing.’