Talking access at the IR Magazine Think Tank – Europe 2019
What do you get when you bring together a room full of European heads of IR? A lot of talk about Mifid II, corporate access, investor targeting and much more. This year’s invitation-only conference, which took place at Bank of America Merrill Lynch’s (BofAML) offices in London, kicked off with a somewhat pessimistic macro update from Evelyn Herrmann, director and economist for Europe at BofAML, with a look at the financial trends impacting European companies.
It wasn’t all doom and gloom, however. The first panel of the day, moderated by David Lloyd-Seed, chairman of the IR Society, saw Rodney Alfvén, head of IR at Nordea, Sarah Dees, head of IR at Sound Energy and Mark Troman, deputy head of EMEA research at BofAML talk sell-side changes and how to attract coverage.
Offering up a teaser of some advance IR Magazine research, the room was informed that globally, 35 percent of companies say they have seen a decrease in the number of analysts covering them since Mifid II came into place in January 2018. Lloyd-Seed commented that while this presented challenges to the IR community, it also offered a positive. ‘It’s really our moment in the sun,’ he said.
A show of hands in the room painted a different picture, however, with fewer than expected saying they had seen the anticipated cut to analyst numbers.
Alfvén said that while Nordea’s certainly not struggling for analysts – the banking giant has coverage from 38, which in some ways is too much – something he has done in an attempt to manage changes on the sell side is to hire a full-time employee to ‘service analysts while I focus on servicing investors. They have different needs and we want to service them both.’
The issue isn’t just one of analyst numbers, of course. There was talk of a ‘juniorization’ of research, a reduction in the quality of coverage, concerns around sensationalism and also a reduction in the enthusiasm of brokers – something Dees says she’s experienced since Mifid II was introduced.
‘We’ve definitely seen a little bit of laziness from some more mid-tier analysts, just because they now have a lot of stocks to cover,’ she said. ‘What you sometimes end up with is something that’s more like a regurgitation of your own reporting rather than research – so certainly, the quality has gone down a bit.’
One option – perhaps more so for smaller and mid-cap companies – is boutique research, Dees added, explaining that she is expecting a rise in these types of houses. ‘I see a need for more specific research pieces that address a certain issue, a certain piece of news,’ she said. ‘Putting something out at an opportune moment – rather than sending round a huge piece of research – could give you that edge, and those pieces of research are not that expensive to commandeer.’ But she warned that IROs will face increasing competition to pick up boutique coverage, too.
Alfvén also advises working on your brand identity – from an IR perspective. ‘We want to have strong branding among investors,’ he said. ‘What do they think when they think Nordea? We have to work make sure investors know exactly what they are buying into – and we want them to buy in long term.’
The Viking approach
Talking sensationalism, Alfvén said the issue is part of a wider trend in society and the media at large, but also something he’s noted among certain analysts – and something that is rarely tolerated by Nordea.
‘You get some analysts you might not agree with but their opinions are based on research and you respect that,’ he said. ‘Now, if an analyst starts to speculate about things he or she doesn’t know about, just to get trading commission, we close down all roadshow activities, conferences and all activity with him or her.’
As an IRO, ‘I think you have the right to deal with that behavior,’ he continued. And while that might be easy to do with 38 analysts, Alfvén argued that even for smaller firms, ‘analysts are still dependent on the relationship with the company. You just need to find the right balance in how to sanction them.’
While Dees doesn’t take quite take the Viking approach to errant analysts, she has a lot of experience with sensationalism. Working in oil exploration, where she explained that around 90 percent of wells fail and where you have a lot of what she described as ‘share prophets’ ready to pounce on any story, consistency is key.
‘You have to be the better person and the better company, whether your strategy involves stepping away from that analyst or speaking up and saying, That’s actually not true and working to make sure messaging is consistent and that you’ve filled any knowledge gaps,’ she said.
‘Often sensationalism happens because people don’t understand something, so being consistent and repeating your story – and making sure your analysts and shareholder base fully understand it – is, from my perspective, the best way of communicating your story.’
Moving on, Alfvén highlighted two other trends he has seen come out of Mifid II and which tied in perfectly with the last session before lunch: a drive among big investors to create their own corporate access teams and – especially from bigger investors – more requests for direct contact.
Direct from the corporate access team’s mouth
After a refreshment break came an ESG-focused session with Janet Craig, senior vice president of IR and communications at AltaGas, Haim Israel, managing director, global strategist and head of global thematic research at BofAML and Jason Mitchell, co-head of responsible investment at Man Group, moderated by Suniti Chauhan, partner at Tulchan Communications.
The last session before lunch brought the conversation back to corporate access and investor targeting, with a panel made up of Lorna Davie, director of IR at Credit Suisse, Victoria Redgrave, director of corporate access and broker relations at Fidelity (Fidelity Management & Research) and Michael Roper, director of partnerships and advisory solutions for EMEA & APAC at IHS Markit, this time moderated by Laurie Havelock, editor-at-large at IR Magazine.
Kicking off the discussion was Redgrave – who has been on Fidelity’s corporate access team since 2012, when there were perhaps two buy-side corporate access teams operating in London. Today, the panel noted, there are maybe 12 or 15 institutions with their own corporate access teams.
Talking about the introduction of Mifid II and its impact on corporate access, Redgrave noted that for Fidelity ‘it was initially very much business as usual for the most part: IR teams were still using brokers, which is fine as far as we’re concerned.’ She explained that Fidelity pays hard dollars for all corporate access organized through a broker for the London investment professionals: ‘That goes from non-deal roadshows and conference attendance through to field trips.’ And that wasn’t a change that came in with Mifid II but with the UK regulator’s (the Financial Conduct Authority) 2014 decision that UK asset managers couldn’t pay for corporate access out of commissions, explained Redgrave.
Things did change over the course of the year, however. ‘Toward the second half of 2018, we started to see an increase in the number of companies coming to us directly for their non-deal roadshows,’ Redgrave said. ‘And again we have no objection to that – we have the infrastructure in place to deal with those in-bound inquiries.’ Today, she said ‘around 25 percent of our non-deal roadshows in London are arranged directly between us and the IR teams.’
For Redgrave, corporate access essentially has three elements: one-on-one meetings, conferences – which Fidelity has ‘become a bit more selective about’ – and field trips, which it tries to arrange internally where possible.
Of course, there are always meetings that even the likes of Fidelity might need a little help with. ‘Brokers have access to a variety of individuals we may ordinarily find challenging to access ourselves, whether it be the King of Spain or the French presidency – I do not have their contact details!’ said Redgrave. ‘The point is that brokers are still a key facilitator, but we will look at what we can do internally and then make the decision as to whether we’re going to arrange it ourselves or outsource it to a broker.’
Another panelist agreed that brokers continue to have a role to play, despite the growing number of buy-side firms creating their own corporate access teams – ‘and this is not just a long-only trend: hedge funds are also doing this,’ the panelist noted.
Even at the logistics level, having a contact in a buy-side corporate access team can make a big difference – when it comes to organizing a roadshow, for example.
‘As an IRO, you’re trying to figure out your next post-results roadshow and work out some dates,’ explained this panelist. ‘You first get availability from your management team but you know you want to see your top shareholders as part of that trip. A quick phone call to say, We’re planning these dates – will X be available? can help you make sure those two or three people you really want to see are in town that day, even if you’re still working with a broker.’
But how do IROs go about cultivating that relationship in the first place? Your covering analyst is the place to start, said Redgrave. ‘At Fidelity, we encourage the covering analyst assigned to your stock to really own the relationship with you. That is your go-to person’ who can help you get in touch with the right person in corporate access.
‘Our global corporate access team (established in 2000), which is based in Boston, London, Hong Kong and Tokyo, compliments that relationship,’ Redgrave continued. ‘We can provide the resources to help you engage effectively with our investment team, arrange meetings globally and provide bios and all the necessary information you might need when preparing to meet with our investment professionals.’
An excellent BofAML lunch was followed by roundtable sessions covering governance, the expectations of US investors, reporting best practice, investor targeting tips and more, before a Q&A with the buy side featuring Richard Penny, fund manager at CRUX Asset Management and Jeremy Thomas, head of global equities at Sarasin & Partners, moderated by Eduardo Garcia, IR manager at Meliá Hotels International.
As the day came to an end, heads of IR from across Europe prepared for the gala dinner and IR Magazine Awards – Europe 2019 that saw Spanish utilities giant Iberdrola claim three trophies (including two of the most coveted of the night: best overall IR and best investor relations officer for Ignacio Cuenca and Diego Morón, both in the large-cap category) as well as being named number one in the Euro Top 100 for the third year in a row.