The US capital region
Baltimore and Washington, DC – two east coast cities with a whiff of southern hospitality – are both quick jaunts from Manhattan and Philadelphia, making them logical stops on any comprehensive roadshow. Each has its share of key destinations, but neither is as fast-paced and exhausting as New York. IROs consider these two easy-to-navigate cities as pleasant way stations in an otherwise grueling schedule of travel and investment rounds along the jam-packed eastern corridor.
Because of their proximity, the two towns are often linked in people’s minds, but their investment communities have little in common. Baltimore boasts several of the best-known and respected names in the investment business, including T Rowe Price and BT Alex Brown. Washington, on the other hand, has no marquee-name firms, and – until recently – little private industry. Thanks to the explosive growth of high-tech and telecom companies like America Online and MCI, the government town is in the grips of entrepreneurial fever.
Baltimore and Washington are ‘very, very different,’ says Dick Prins, senior VP at Ferris Baker Watts in McLean, Virginia. The investment community in Washington is regional in scope, while firms like BT Alex Brown cast a wider net. ‘Alex Brown is national,’ says Prins. ‘They’re not focused on Baltimore. They’re not focused on Washington. And with the merger with Bankers Trust, they’re global now.’
Baltimore may be where it’s at when it comes to financial prestige, but the nation’s capital is rich in power and access; for an IRO, this translates into lobbying opportunities and a chance to court some heavy-hitting shareholder activist groups. The two cities also engage in playful rivalry. Asked to describe his neighbor to the north, Prins says: ‘Baltimore? I don’t want to say anything too disparaging.’
Since going public four years ago, Lear Corp of Southfield, Michigan has launched several secondary offerings. Consequently, Lear’s IRO Jonathan Peisner has visited Baltimore many times on roadshows. He tends to schedule a day of meetings in Philadelphia before travelling south to Baltimore.
‘Baltimore is not only an important stop for a roadshow, but if you plan it right, it can be a refreshing stop vis-à-vis New York and Boston, which are pretty intense,’ says Peisner. ‘After New York and Boston, you’re going to be pretty beaten up. Not that the guys in Baltimore are any less sharp,’ he says, but the whole atmosphere is less pressured and rushed. ‘Certainly, T Rowe Price is the 900-pound gorilla there,’ says Peisner. When in town, he also meets with BT Alex Brown and Investment Counselors of Maryland.
Baltimore’s investment houses aren’t characterized by a single, easily-identified style. ‘There have been spin-offs and mergers of investment firms,’ says Gerry Foster, senior VP of IR for Schering-Plough. ‘In any city now, you get a real mix of different styles,’ she says. ‘When I think of T Rowe Price, I don’t think of Baltimore. I think of a very professional, large investment firm.’
The city may not have an overriding investment character, but the individual firms have cultivated their own unique personalities. Legg Mason Wood Walker, for instance, takes a long-term approach and so develops close relationships with the companies it invests in. ‘Our holding period is three to five years. Most funds turn over annually,’ says Nancy Dennin, senior VP and portfolio manager. The four portfolio managers and some five analysts for Legg Mason Fund Adviser – with $8.3 bn under management – meet roughly 250 companies a year, she estimates.
Proximity to New York may lure visitors to Baltimore, but it also means that the city suffers a dearth of conferences. According to Dennin, most major firms hold their larger gatherings in Manhattan, rather than on their own home turf. ‘On the sell-side, Legg Mason has sponsored conferences,’ she says, but most are held in New York or even Washington. One notable exception is BT Alex Brown’s healthcare conference, which occurs each May in Baltimore.
Baltimore’s business community is in flux and has recently suffered some major losses. One defection was USF&G. As time goes on, people speculate that Alex Brown could be less of a presence in Baltimore. Dennin points out that even before being purchased by Bankers Trust, Alex Brown had substantial personnel and resources outside the city. Similarly, T Rowe Price has offices in downtown Baltimore, but it also has operations west of the city. Barbara Weiss, VP and research administrator at Legg Mason, notes that Baltimore is making efforts to stop the exodus. ‘The city has tried to keep these companies here, but it’s hard,’ she observes.
Regardless of the changes afoot, IROs like Lear’s Peisner and Schering-Plough’s Foster still rank Baltimore as an important destination when making the investment rounds. Besides its IR benefits, Peisner singles out Baltimore for its relaxing setting: ‘It’s a toned-down environment. It’s easy to get around. And the waterfront is gorgeous.’
When asked about Baltimore, everyone mentions the city’s manageable size. T Rowe Price is right across the street from Legg Mason, while BT Alex Brown and Investment Counselors of Maryland are near neighbors, says Dennin.
Reaching Baltimore is also easy. ‘The Metroliner train is probably the most convenient way to get to Baltimore from New York,’ according to Dennin. Without rush-hour traffic, Baltimore-Washington International (BWI) airport is only a 20-25 minute cab ride from downtown Baltimore. Cabs are the vehicle of choice within the city, according to Dennin, who notes that cabbies line up outside the stores on the Inner Harbor. To guarantee a return ride, she advises visitors to arrange a pick-up time with the driver or risk being marooned.
Just a government town?
‘A couple of years ago, Washington was just a government town. To the degree that there were private businesses, they were in real estate or they were banks,’ according to Doug Poretz, founder of the Poretz Group, an IR consulting firm in McLean, Virginia. That’s all changed, he says, given the meteoric rise of companies like America Online. ‘There’s a great sense now that the area is percolating with major strides in technology,’ says Poretz.
Because of the growth in telecommunications and internet companies, some sell-side analysts have set up shop in the area. One example is Friedman Billings & Ramsey, which specializes in technology, banks, and specialty finance. Another is Ferris Baker Watts, an investment bank that does institutional and retail sales and research for telecommunications and IT companies in the DC region.
‘There’s a tremendous infrastructure, particularly of people who understand communications technologies, including IT services and the internet,’ says Prins. ‘The things that companies have been doing for the government in terms of IT services for years have become profitable to private companies.’ Consequently, he says, ‘There have been a lot of folks who have flocked to the town.’
Given the growth in Washington and its environs, DC business folk are touting the city as an up-and-coming venue for roadshows. ‘Certainly, it will make sense more and more to come here,’ says Poretz. ‘There’s a greater sense of enthusiasm than ever before – a greater sense of entrepreneurialism.’
IROs may still take some convincing. Lear’s Peisner has thus far passed on DC: ‘Washington has not been worth the time from a roadshow perspective.’ Foster of Schering-Plough seconds his analysis: ‘There just are not that many investors in DC proper.’
Some seasoned IROs come to the nation’s capital to visit shareholder watchdog groups like the Investor Resource Research Center (IRRC) and Institutional Shareholder Services. Others may pay a call on influential labor unions like the AFL-CIO or the Teamsters.
Typically, says IRRC executive director Scott Fenn, companies meet with IRRC when they have significant new management or corporate governance issues on their proxy ballots. Others stop by for the equivalent of an annual check-up. Along those lines, Anne Hansen, deputy director for the Council of Institutional Investors, describes visits from IROs as a precaution, given that her organization protects the over $1 trillion in assets of its pension fund members. ‘Many times,’ she says, ‘they do it as a prophylactic – so that they’re aware of the issues that might affect them.’
The CII holds public meetings in DC, and each fall, the IRRC hosts a major conference. This October, says Fenn, political big-wigs like Mario Cuomo and Jesse Jackson are slated to speak at the IRRC’s ‘Investor Responsibility and Shareholder Value’ conference, which will be held at the Renaissance Mayflower Hotel.
Finally, DC is home to some powerful labor unions with large pension funds, such as the Teamsters, which has collective assets totaling $70 bn. Bart Naylor, director of corporate affairs for the Teamsters, acknowledges that visits by companies aren’t always cordial because the union may be asking management to account for a shareholder resolution or impending litigation. The Teamsters take a long-term buy-and-hold approach when it comes to the majority of their pension assets, but are vocal in criticizing companies with ‘shareholder-unfriendly’ provisions, ‘persistently poor performance,’ or boards that lack independence, says Naylor.
Like Baltimore, Washington is a visitor-friendly city. The DC subway system – referred to as ‘the metro’ – is top-notch and cabs are plentiful. Travelling to and from the city is easy. New York is only three hours away by Amtrak’s Metroliner. And planes arrive at three local airports: Ronald Reagan National, Washington Dulles International, and Baltimore-Washington International (BWI).
Of all the business and cultural attractions Washington and Baltimore possess, geography is arguably the most significant. Both boast of their proximity to New York City, to each other, and to a host of other East Coast investment magnets like Philadelphia and Richmond.
Geographical advantages aside, each city is important in its own right. Baltimore remains a must for IROs because of its powerhouse firms and buy-and sell-side clout. And Washington isn’t only home to politicians and talking heads; it seems poised to win a long-coveted spot in the investment firmament. The District of Columbia, says IRRC’s Fenn, is ‘increasingly on the map when companies do roadshows. It’s not Wall Street, but there’s much more of a financial community than there used to be.’ If you haven’t paid a visit of late it could be worth checking it out.