Mifid II puts pressure on IR teams
Mifid II has put the IR teams of UK companies under increasing pressure as demands from investors soar, according to research from London-based IR specialist firm Orient Capital.
The implementation of Mifid II in January last year always had the potential to increase the range of responsibilities IR teams must take on as support from brokers reduced and investors engaged with issuers directly. This, states the research, is clearly placing IR teams under strain.
In a survey of IR professionals from the UK’s 350 largest companies, 44 percent see the limited resources available to them as their primary concern, up from just 14 percent in 2017.
The squeeze on resources is felt more acutely among companies in the FTSE 250, which typically have smaller budgets and IR teams. Fifty percent of IR professionals at mid-cap companies cite resources as a key concern, compared with 39 percent in the top 100.
This poses a difficult question: how can smaller IR teams address this when, by definition, they lack the budget and team size? In response, Alison Owers, EMEA CEO of Orient Capital, tells IR Magazine: ‘They need to be open to using a broader resource pool and using the right advisers and providers. Ultimately, consider having a dedicated IR function.’
Greater direct interaction with investors and a more proactive approach to arranging investor roadshows has placed IROs under greater pressure, with 32 percent of IROs identifying the increase in direct meeting requests from investors as a key challenge. Indeed, the analysis shows the average IR team held 24 percent more meetings with investors last year than the previous year.
The typical company in the FTSE 350 now conducts 328 investor meetings per year – up from 265 meetings in 2017. On this, Owers notes: ‘Perhaps companies are being much more open to the number of direct incoming meeting requests and responding to these. It’s hard to see how long this trend might continue. It’s certainly something we will be watching out for over the coming year.’
The good news is that an increased burden on IR teams has led to larger budgets, with half of all IROs seeing their budget increase since Mifid II. This, as might be expected, is slightly more prevalent among FTSE 100 companies (53 percent) than those in the FTSE 250 (47 percent), leading one to wonder whether this is an ongoing trend or one that deals with the immediate challenge of Mifid II. ‘This could be just a reaction to the direct challenges presented by Mifid II,’ says Owers.
More than a quarter (26 percent) of companies have increased the headcount within IR this year. Nonetheless, rising concerns over resources suggest bigger budgets have proved insufficient to cope with demand.
As IR teams’ workloads increase and they take a more proactive approach with investors, it is important that available resources are used strategically and efficiently. Investor targeting, based on detailed insight of investors, is central to this.
Many companies, however, are unsatisfied with the quality of the targeting reports they receive: 38 percent of respondents would like more information on existing investors to shape their engagement. Worryingly, only 12 percent of issuers understood their investors’ target price in relation to their stock. ‘This is perhaps highlighting that issuers need better support and preparation on what their investor views are,’ observes Owers.
‘Seismic regulatory changes have shifted the ground beneath IR teams. They are under greater pressure as disintermediation takes place and investors increasingly seek to engage directly. At the same time, sell-side research coverage has reduced, creating a need for IR professionals to take a more proactive approach. This is creating a perfect storm when it comes to demands on time and resources.
‘As IR teams adapt to the new world, it is more important than ever that they use their available resources as strategically as possible. This means having the right analysis, targeting and support to prioritize and plan meetings and focus communications effectively. They cannot afford to fly blind.’