Demand for direct engagement between firms and investors is on the rise. Amid structural changes on the sell side, accelerated by Mifid II, IROs are facing increased workloads. This is causing a shift in focus for recruiters working on some IR-related searches.
‘There has been an emphasis on corporate access [since the roll-out of Mifid II],’ says Debbie Nathan, director of IR and communications at Carter Murray, a global recruitment agency. ‘The broader change Mifid II has brought is the direct contact corporates are finding themselves having with shareholders rather than going through a broker.’
An IR Magazine best practice guide, How has Mifid II changed corporate access?, published in March 2020, underlines that IROs are relying less on the sell side: European IROs are relying on brokers 24 percent less for investor targeting since the Mifid II roll-out, followed by North American IR professionals with a 21 percent fall in dependency.
Sizing up options While demand for corporate access hasn’t changed, how it is arranged has in some cases. For many European issuers – especially small and mid-caps – there are fewer opportunities to secure meetings and roadshow slots through the sell side, and IR teams in Europe are responding in two ways, says Nathan.
First, some firms are looking to add an external corporate access specialist to their team. ‘More and more firms are considering hiring corporate access professionals to help them with targeting, roadshow planning, who they should be seeing and where new pools of capital are,’ says Nathan.
She notes that hiring corporate access specialists is particularly a trend among British companies. ‘Some UK companies – when their IR teams were expanding – looked for [candidates] with experience in roadshow planning and targeting,’ she says. ‘They have done this more so than previously.’
A second alternative to tackling the increased workload of IR departments is to train up a team member to take over the additional responsibilities, including targeting.
For instance, Schneider Electric has not hired a corporate access specialist externally, but the IR team has responded to increased demand for corporate access by training IR team members who now bear more responsibility for co-ordinating the company’s investor meetings and roadshows, a company spokesperson tells IR Magazine.
Beyond Mifid II, ESG is the other mega-trend driving an increase in IR teams’ responsibilities and investors’ requests for information.
‘A trend toward direct engagement has been in place for a while. It is accelerating this year largely because of the growth of ESG and the UK Stewardship Code requiring investors to engage with corporate issuers,’ explains Michael Hufton, managing director of IR software firm ingage.
In a survey of hedge fund managers published in February 2020, the vast majority of respondents (84 percent) say there has been an increase in interest in their company’s ESG capabilities over the last 12 months, with 58 percent describing the growth as significant. The study – conducted jointly by KPMG International, CREATE-Research, the Alternative Investment Management Association and the Chartered Alternative Investment Association – also suggests that hedge funds are starting to see more opportunities in ESG to bolster returns, a factor that will no doubt lead to increased requests for information and meetings.
Broadening talent pool
UK issuers open to adding corporate access specialists to their investor relations teams are eyeing corporate access professionals at investment banks. ‘These firms are interested in hiring people with a corporate access background, ideally from an investment bank,’ says Nathan. ‘Those people know the network and the buy side, and have a very good understanding of the market.
‘The existing professionals who came into IR are still there. We have the addition of new talent: capital market professionals. Many of them know the IR teams and the market as well so they can [potentially] move to an investor relations role. Historically, people within an IR team were not necessarily hired to do the administrative side of roadshow planning, like booking one-to-one meetings with different institutions.
‘Instead of outsourcing this to brokers – though some of them are still doing it – many [IR teams] are now doing it in-house by either restructuring their teams or hiring a new person to focus on that area.’
Mifid II certainly contributed to some sell-side contraction and in the UK that has reportedly led to an increased demand from former sell-siders to join IR teams and flex their corporate access muscles. ‘There has been an exodus from the investment banks in the last few years,’ Nathan says. ‘That has been accentuated by the closure of some big UK equity teams at large investment banks.
‘IR roles [can provide] somewhat more stability and longevity because there is more uncertainty [on the sell side], so it’s appealing to make that move into investor relations.’
Kay Bommer, general manager at DIRK, the German IR association, says IR departments adding corporate access people to their teams has yet to happen in Germany. ‘There is a demand for corporate access professionals among German issuers to help them with targeting, roadshow planning, and so on, but hiring additional corporate access professionals has not been happening in Germany yet,’ he says.
‘Extra budget to expand has not been allocated to small and mid-cap corporates’ IR teams. Large and mega-cap German companies either still outsource to brokers the task of organizing roadshows and engaging with investors, or solve the issue internally by restructuring their IR teams.’
Bommer points to a significant difference in the working relationship between the sell side and the buy side in the UK and Germany before Mifid II came into effect. ‘In the UK, organizing roadshows and engaging with investors were tasks mainly done through a broker as opposed to Germany where shareholder identification has traditionally been the task of corporate IR teams,’ he explains.
Emphasis on direct engagement between public companies and investors in Germany will potentially grow this year in response to the implementation of the Shareholder Rights Directive II (SRD II), the second phase of which comes into force on September 3, 2020.
Speaking to IR Magazine in February, Markus Becker, director of stock surveillance and corporate access at EQS Group, says the major impact of SRD II on public companies in Germany is due to a dominance of bearer shares issued anonymously
through an intermediary.‘Only 50 percent of DAX companies have registered shares,’ he points out. ‘If you go down the indices to look at smaller firms, it falls to 30 percent registered shares and 70 percent bearer shares.’
The rule change not only gives firms the right to identify their shareholders but also requires them to update shareholders on company events and actions. All these legislative changes could lead to an even greater emphasis on corporate access.
This article was published in the Summer 2020 issue of IR Magazine.