International meeting of minds: Highlights from the IR Magazine Global Forum 2019
What links Mifid II, Greta Thunberg and Jeff Bezos? They are all, in their own way, shaping the future of the IR profession.
Mifid II is driving changes in equity research and investor targeting. Thunberg fronts the global fight against climate change, which increasingly is an issue companies must address. And Bezos is helping everyone, including investors, make the most of new technology, such as artificial intelligence (AI).
These topics all came under scrutiny at the IR Magazine Global Forum & Awards 2019, which took place in Paris on October 2-3. The annual event attracted more than 180 attendees from a total of 31 different countries.
Over the two days, the agenda tackled three central themes – research and targeting, ESG disclosure and engagement, and the impact of technology on IR – with multiple sessions on each.
Mifid II: It’s not all bad news
One of the interesting findings to come out of the conference is that some IROs are actually enjoying the effects of Mifid II. Since its implementation in January 2018, the far-reaching European legislation has led to complaints that it makes investors harder to access.
The new rules have meant investors having to pay for equity research and corporate access out of their own funds, leading them to cut back on the sell-side services they use. As a result, fewer investors are attending conferences or broker-led roadshows.
A recent survey of IROs by IR Magazine summed up the general mood: half of respondents say they have a negative view of the impact of Mifid II, while just 14 percent have a positive impression.
For some IROs, however, the market shake-out has led to an overall rise in standards. ‘I think Mifid has improved the quality of our meetings,’ said Manuel Taverne, director of IR at Austrian aerospace company FACC, who spoke on the first panel discussion at the forum.
He explained that while Mifid II has caused some smaller brokers to exit the market, it has also create space for new entrants to offer conferences and roadshows. ‘Overall I see that it costs more – my budget is higher than two years ago – but the quality of meetings, the quality of my corporate access, has improved,’ he said.
Karen Bodner, head of global IR advisory in the depositary receipts division of BNY Mellon, added that the changing economics of the corporate access industry are creating new opportunities for IR.
‘It used to be that brokers would be the ones driving, saying that I need to have management,’ she said. ‘Well if they are getting paid $10,000 a meeting to bring the CEO but not the IRO, obviously they are demanding to bring the CEO on the road. But that’s just not the case anymore, right? So it’s more democratizing for investor relations.’
ESG on the rise – but not for stock picking
You’d need to be living in an abandoned coal mine to avoid the global debate around climate change. Indeed, global warming is one of the main issues driving more and more investors to integrate some form of ESG criteria into their investment decision-making.
The amount of assets classed as sustainable now stands at more than $30 tn, having climbed a third since 2016, according to research from the Global Sustainable Investment Alliance. At the conference, Bodner explained how investors are incorporating ESG into their processes – and it’s not being used to pick stocks, at least for now.
‘Risk management is really why they were using this data,’ Bodner explained. ‘They are using it to understand your companies and understand the risks. And that’s of course why governance matters. Because governance is really about risk management. Can you target ESG investors? The answer is no – sorry. Passive, negative, exclusionary screening is the biggest way [investors] are using this information.’
Around three quarters of asset managers expect negative screening to increase over the next four years, she added, citing a BNY Mellon survey.
Why aren’t investors using ESG information to pick stocks? Bodner outlined three interconnected reasons: a lack of comparable corporate information, a lack of reporting standards and the cost of gathering and analyzing the information.
She urged the IROs present to help investors make more informed ESG decisions by providing clear, measurable information and taking part in working groups on standardization.
AI and alternative data: Everything is being watched
The use of AI and alternative data – meaning information that is not traditionally used in the investment process – has been on the rise among investors for some years. But recently the trend has accelerated thanks to lowering costs and a proliferation of new tools.
A survey by TABB Group at the end of last year found that 83 percent of buy-side respondents are at least in the planning/research phase of investing in AI technology. A separate study, conducted for IHS Markit by Greenwich Associates, found that 74 percent of investors think alternative data is beginning to have a significant impact on institutional investing.
But when we say AI, what exactly are we talking about? There are a lot of misconceptions about what AI really is, explained panelist Daniel Nye, chief investment officer at Swiftsure Partners.
‘Probably a better way to approach it is to call it augmented intelligence,’ he explained. ‘Fundamentally, AI isn’t sentient, so it’s not what you see in the movies. Basically it’s pattern recognition... It’s simply very good at looking for patterns and then ascribing a probability of an outcome to those patterns.
‘That said, the tools have become much less expensive and much more widely used. To give you an indication of where they are used almost every day, when your CEOs and CFOs conduct their quarterly conference calls and release their quarterly filings, that’s being listened to.’
He suggested companies investigate what words or changes in cadence could trigger a sell signal during a presentation or Q&A.
And it’s not just investors looking at this information. The SEC is using AI to screen whistleblower complaints and review corporate filings for fraud, said Nye. ‘This isn’t the future, this is happening right now,’ he warned. ‘So in your seat, you’ve got to think about what you are facing. And think about ways to prepare your managers to be able to navigate this really challenging period, and not make any mistakes.’
Aside from the three central themes of the forum, IROs also received a host of career advice from a range of experienced, international voices. Among those speakers was Kurt Kuehn, who, after joining UPS as a delivery driver in Christmas 1977, worked his way up to become head of IR, head of sales and marketing and finally CFO.
During his time with UPS, he also helped the company go through the largest IPO of the 20th century and launch its first sustainability report, an issue he remains focused on today as a sector chair with the Sustainability Accounting Standards Board.
To be a successful IRO – as well as keep your options open for future moves up the ladder – it’s important to have a wide variety of skills, said Kuehn.
‘I’m a generalist, and I think understanding yourself and your skills can help you find the right approach to IR. That was the value I brought to the company – I knew a little bit of everything and a lot of nothing,’ he said.
‘I think good IR executives really have those skills, because they have to be part marketer, they have to be a researcher, they have to be a skeptic, almost a reporter in pulling information out, and then an incredible communicator.’
The IR Magazine Global Forum 2019 & Awards took place in association with CLIFF, the French IR association. It was sponsored by AlphaSense, BNY Mellon, Broome Yasar Partnership, Brunswick Group, Business Wire, CMi2i, EQS Group, IHS Markit, Taylor Rafferty, Zebra Corporate Communications and ZRG Partners.
The IR Magazine Awards – Global Top 50 took place on the first evening of the forum. Click here to find out about the awards and view the full list of winners.