Corporate access has changed dramatically in recent years. By unbundling research and trading activity, Mifid II has placed a greater onus on IR teams to fill the gaps that are inevitably being left by the investment banks – which are being squeezed on pricing and volume of work.
Last month, we held a breakfast briefing in New York City, where senior IR practitioners and CFOs had the opportunity to bridge the gap and begin building relationships with buy-side corporate access leaders. Following the panel discussion, attendees had rare one-to-one meetings with the buy-side corporate access members, where they shared first-hand insights on one of the largest changes in the market and how best to navigate the new terrain.
Regulatory changes prior to Mifid II laid the groundwork for the recent changes to corporate access. Through Regulation Fair Disclosure, Regulation Analyst Certification and the Global Settlement, US regulators drastically transformed how investment banks initiated corporate access. These changes started the migration of talent from the sell side to hedge funds, with buy-side corporate access roles popping up at a range of hedge funds that looked to gain a competitive advantage by setting up their own meetings.
Mifid II has speeded up these changes, as large institutional investors have followed in the hedge funds’ footsteps by hiring their own corporate access heads. There were even reports in the Wall Street Journal earlier this year that a small group of institutional investors – including T Rowe Price, Fidelity and Wellington – were clubbing together to organize their own investor conferences.
In this new landscape, large and mega-cap companies still have no problem securing meetings, but small and mid-caps face greater challenges with getting in front of the right investors and using their management time effectively. This asks more of IR teams and requires them to have an understanding of how corporate access works at different investors.
‘In this new era, investor relations is evolving from an inbound function to an outbound function,’ said Mike Coffey, vice president and head of solutions engineering at Q4, at the breakfast briefing. ‘Competition for investor meetings is fierce and with the disruption to the sell side Mifid II has brought, IR teams have to be at the forefront to make sure they connect their management teams with the right investors.’
Filling the quality gap
One of the key challenges speakers at the briefing identified was the declining quality of meetings set up at broker-led conferences. Today, investors are being asked to pay for corporate access, something they’re not used to doing because it was previously bundled together with trading commissions.
As a result, these conferences are most frequently attended by a relatively small group of hedge funds that can afford to pay the broker for the corporate access. For IR professionals, it’s harder to convince their management team to spend time on the road at investor conferences if they’re always meeting with the same hedge funds.
On paper, this is the problem a lot of corporate access heads at asset managers have been hired to solve. But these teams are small and are still getting up to speed themselves. In essence, they’re hired to be more discerning about the corporate access their firm’s portfolio managers and analysts consume – but their work is cut out because their coverage is vast.
This is where IR can play a vital role, Coffey explains. ‘IR professionals should be getting to know the corporate access heads at their most important investors and target investors,’ he says. ‘If IR can help to explain the equity story, be available to answer any questions investors may have, and ensure the right executives are available to meet with portfolio managers, they will demonstrate clear value.’
The role of the sell side
While the sell side has clearly been impacted by Mifid II and the US regulatory changes that came before, it is still a crucial part of the capital markets ecosystem. IR teams still continue to work closely with covering analysts to ensure accuracy of financial modelling and plan effective roadshows and conference appearances. But IR teams will likely need to supplement their roadshow using an effective CRM database and targeting tools.
One of the takeaways from the breakfast briefing was that corporate access heads at asset managers have a lot of respect for the sell side and often work closely with sell-side analysts. Indeed, there have been reports of issuers flying to a certain city to meet with an investor directly, then contacting their sell-side analyst to back-fill a day of investor meetings. This demonstrates that the sell side isn’t going away – it’s just evolving under market pressures.
It was also clear from the breakfast briefing that more education is needed in this new landscape. At some investors, corporate access heads play a very hands-on role in terms of determining the meetings that occur. Whereas at other institutions, the corporate access head is there to support portfolio managers and analysts in setting up the meetings they want.
These differences mean IR teams need trusted intermediaries that can help them understand how corporate access works from one investor to another, Coffey said, adding: ‘Q4 is building relationships with corporate access heads to help connect them to their IR contacts and ease the teething problems of this new style of corporate access.’
Another solution to the corporate access conundrum is even more simple. Several of the panelists simply encouraged the audience of IR professionals to pick up the phone and call them. For instance, if an issuer is traveling to a city for a broker-led conference but isn’t meeting with an investor it knows is based in the city, the IRO should call the corporate access head at that investor to ask why. In many cases, IROs may find they can supplement their meeting schedule and maximize their management’s time on the road.
A changing landscape
It’s clear that all sides of the corporate access conversation – issuers, investors and investment banks – are working to establish what the new normal looks like. Q4 firmly believes there’s an opportunity for IR professionals to elevate their status with their investors and their management team by playing a more active role in corporate access.
The technology exists to conduct peer investor analysis, track meetings and target prospective investors directly. IR professionals who leverage these tools to build meaningful personal relationships with the corporate access heads at their most important investors can add strategic value to investors and management alike.