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Jan 13, 2016

From weeks to years: investment decision process varies widely by firm

IR teams can better market companies and set expectations by researching firm processes, Ipreo says

Investment managers differ widely in the processes they use to make investment decisions, taking disparate approaches to structuring their decision-making teams, covering sectors and pitching investments, according to a study by Ipreo.

The speed with which firms make a decision can vary from a few weeks to several years, depending on the investment firm and how familiar its staff is with the stock under consideration and the capital markets data provider, says the market intelligence firm in a special report.

‘The research strategies differ by each asset manager and the responses on the proprietary approaches of each firm can assist IR teams in marketing their investment stories and setting expectations on the return on investment of their time spent,’ Ipreo says.

‘Team structure, sector coverage and the investment pitching process stood out as areas where each asset manager differed,’ according to the report. ‘Most performed initial fundamental research followed by contact with IR and management as the next layer of research.’

An analyst at BlackRock says the firm is organized so that fewer people can manage more money than peer firms, allowing IR professionals to potentially tap a bigger investment pool in smaller meetings.

‘If a company wanted to come to Princeton, they could meet with two portfolio managers and be exposed to decision making for $150 bn equity assets under management (EAUM), where they could meet with 25 people and be exposed to $20 bn in EAUM at a peer asset manager,’ the analyst states.

JP Morgan Investment Management typically takes a couple of months to decide on an investment, according to an analyst at the firm.

‘I do an awful lot of work myself, which includes meeting with the company and competitors,’ the analyst says. ‘Then I present this idea to our portfolio manager. If it is a stock that we have decided to buy, I will buy it myself and actively communicate to other investors on the floor why I am investing and why they should consider as well.’

An analyst at MFS Investment says it is ‘essential’ for the firm to meet with companies before investment, and the sell-side is not invited to the meetings.

‘Additionally, I enjoy trips to a company’s headquarters and typically do not invest if I have not seen their headquarters,’ the analyst states. ‘The exception to this rule would be IPOs. In this case, we meet with the team during their public roadshow, but will [also] try to meet with them as soon as possible after the quiet period.’