‘This is a particularly challenging time to communicate with buy-side firms,’ said Corbets Capital president Thomas Stephens, talking about the way financial sector firms should be thinking about – and communicating – volatility in 2022. ‘You’ve got highly volatile markets, deep geopolitical uncertainty and often conflicting economic indicators. You really have to work hard to break through the confusion and clutter.’
Stephens was speaking as part of a panel at ‘Inside the buy side: Navigating uncertainty in the financial sector’, an IR Magazine Breakfast Briefing in association with Corbets Capital. Moderated by Steven Wade, head of event content at IR Magazine, the event featured Stephens, who has 30 years of experience as an investor in the financial sector, plus Brian Schulz, senior analyst for financials at Corbets Capital, Robert Ax, portfolio manager for financials at Corbets Capital, and Mark Cabana, managing director and head of US rates strategy at BofA Global Research.
The in-person event, held at Corbets Capital’s New York offices, covered everything from inflation, other risks and the outlook for the market to holding periods and what financial sector investors want from IR.
‘Times like these require a more concerted effort to communicate your narrative,’ Schulz said. ‘People are inundated with information and you don’t want them making uninformed assumptions about your company.’
The three Cs
That narrative is where, in today’s volatile environment, the relationship between IR and a company like Corbets ‘becomes even more critical,’ Schulz said.
‘Being clear, concise and consistent is what matters,’ he added. ‘When companies are in a position to provide information and actual updates to their status – or a broader update of how the story is progressing away from the macro – that provides an opportunity for investors to take a view on the stock that isn’t solely hostage to whatever the next inflationary data point is.
‘Your message is not going to resonate with everyone. But having a transparent two-way debate creates liquidity around your name, and that’s actually going to be beneficial if you’re good at delivering a consistent message right now.’
Don’t be shy
When it comes to messaging recommendations for companies in the financial sector given the volatility of 2022, Schulz said firms should be focused on explaining to investors how they will fare in a weaker environment.
‘Everyone is wondering what will happen if the economy deteriorates,’ he said. Companies can’t shy away from that. If, for example, unemployment was to spike to 5 percent or 6 percent, what does that potentially mean for the lost content of my book?’
The focus could also look at what that would mean for the book today versus what it would have meant in 2007, Schulz added, ‘which is going to be a very positive message for a lot of the banks because the books are just structured differently, and they don’t have some of the products they had back then.’
Schulz also gave the example of a company that recently decided to shift away from a more typical approach to guidance – What is this quarter going to look like? What is this year going to look like? – and instead framed guidance through a lens of asking: if the environment of the second quarter, which was very hostile to the business, was not to change, what would the downside be?
Stephens agreed. ‘I think that’s incredibly valuable to investors, because when things are very uncertain, people tend to fear the worst,’ he pointed out. ‘And they tend to value stocks based on the worst. If you can give [investors] some comfort that the worst is actually not as bad as what’s in their mind, that is going to start bringing people back to your stock.
‘The more checkpoints you have, the more opportunities people like us have to have conviction, to build positions, to have staying power.’
An independent manager with the benefits of scale
Corbets Capital is a new equities business founded in September 2022 with a large committed capital base as part of the $17 bn Balyasny Asset Management (BAM). While leveraging BAM’s capital base, scale and technology, Corbets operates independently. The firm is centered on attracting seasoned long/short equities investment talent focused on diligent bottom-up fundamental analysis.
Schulz said: ‘Corbets portfolio managers are experienced sector specialists who have succeeded across multiple cycles and want to build a team and a business with a long-term outlook. Most importantly, we strive to develop relationships with management teams over extended periods of time by fostering a collaborative two-way dialogue.’
After the breakfast briefing, Stephens discussed on IR TV why the time was right to launch the firm and its formula for success, the outlook for the financial sector, how the impending recession will be different from the financial crisis of 2008, and more.
‘We’re most focused on inflation right now, and this is just different from prior cycles,’ he explained. ‘We’re also paying close attention to liquidity and making sure financial markets are operating efficiently. We want to make sure our companies are able to tap into capital markets and raise money when they can.’
Watch our interview with Thomas Stephens, president of Corbets Capital, on IR TV and listen via The Ticker podcast.