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May 22, 2016

Poland: The new European destination [AUDIO]

Warsaw might not rival the likes of London or New York but, according to IR Magazine research, companies are spending more time in the Polish capital. We look at who is visiting Warsaw, why they’re going – and who they’re seeing

This article is now available to subscribers as an audio recording too – please see below the "At a glance" section for the playback option.

At a glance

Emerging money

The cities crowning the IR Magazine global roadshow top 20 destinations list are unlikely to change any time soon. If you’re looking for a path less trodden, however, our research often uncovers potential new investment destinations that, while not making it into the top rankings, are nonetheless seeing a boost on the investor relations circuit. Warsaw is one such city.

Pension fund reform
The apparent increase in the number of companies visiting Warsaw is essentially down to two things, says Marcin Gątarz, head of research at Pekao Investment Banking: the pension fund reforms of 2014 and an increase in the percentage of assets under management that funds can invest in foreign equities, which means there’s more money available to invest internationally.

Getting on the road
Because Warsaw is more of an emerging investment destination than an established roadshow stop-off point, it can be difficult to find the right information. Investment fund websites are often only in Polish, and even a native speaker might have to dig deep for even the basic facts and figures. This means that a bit of local knowledge can go a long way.

When it comes to the roadshow big hitters, there’s no denying that US cities dominate, London is the European hot spot and Singapore and Hong Kong are where it’s at in Asia.

But what about the emerging destinations?

Those cities that might not make the IR Magazine Global Roadshow Report top 20 list but are seeing more visiting IROs? Those cities that maybe see IR professionals staying a little longer?

Last year, visitors to London spent an average of 3.9 days in the city, followed closely by New York at an average of 3.5 days, according to the study. IROs spent an average of 2.8 days in Hong Kong and two days in Boston. Warsaw, on the other hand, boasts a three-day average, based on the responses of 37 separate companies – only eight of which are from Poland. Six are from elsewhere in Eastern Europe while a larger proportion (62 percent) are from other countries. ‘This points to Warsaw developing as a key investment center for companies both within and outside of Eastern Europe,’ write the study authors.

Pension fund reform

But why are companies heading to Warsaw? ‘The big change is that pension funds – which still make up the main body of the investor base in Poland – have started to invest more of their capital abroad,’ explains Marcin Gątarz, head of research at Pekao Investment Banking. ‘[In 2015] we estimated that Polish pension funds funneled more than €1 bn ($1.1 bn) into foreign equities, which is a big increase on previous years.’

What brought on this increase, says Gątarz, was the 2014 nationalization of government bonds – essentially a bond grab that slashed portfolios. With the funds’ bond portfolios cancelled, pension funds began looking to foreign equities to provide the stock liquidity offered on exchanges in western Europe or the US. ‘In Poland they can find only a limited number of liquid companies,’ says Gątarz. ‘And with the portfolios full of equities, they need to have some way to react quickly if something major happens on the equity market.’

At the same time, the percentage of assets under management that pension funds can invest in foreign equities has been increasing. In 2014 the amount pension funds could invest increased from 5 percent of assets under management to 10 percent, climbing to 20 percent in 2015 and settling at a high of 30 percent from the start of this year.

Despite this increase in the sums pension funds can invest abroad, Katarzyna Mucha, IR manager at Warsaw-based consultancy Capital Communication Group (CCG), says that so far, few funds have managed to up their investments in foreign equities. ‘Even though the pension funds are allowed to [invest more outside Poland], the share of foreign investments in their portfolios is around 10 percent,’ she notes. ‘They are trying to increase this but it is going up very slowly.’

What investors want

This mission to diversify portfolios applies to both pension funds and investment funds, explains Adam Kalkusiński, head of IR and chairman at CCG. This could be achieved through new sectors or exposure to other markets but, because of this need, Kalkusiński says CCG is seeing an increase – albeit a small one at the moment – in the number of foreign companies traveling to Poland to meet investors.

‘If you look at a sector like biotech or healthcare, the representation of companies in these sectors on the Warsaw Stock Exchange is quite limited – we have only five or six names – while these sectors normally account for a big part of the US or German market, for example,’ he explains. ‘This is one of the sectors where Polish investors are looking to get some exposure through foreign companies.’

Gątarz agrees. ‘Some investors are trying to find the exposure they cannot get in Poland, such as new technologies, biotech stocks and so on, or that are only present in the small and mid-cap area, which means they are quite often illiquid or have valuations that can be very quickly inflated,’ he points out.

On the other hand, some funds – and Gątarz says this is certainly the case with pension funds – are looking for companies in sectors that are already present in Poland. ‘The funds might find the Polish stocks in these sectors too expensive, so they want to find a similar exposure but at a cheaper price,’ he explains. ‘In terms of international exposure, growth is more appealing than dividends, especially given that among the Polish blue chips, there are more dividend than growth stories. But of course it really depends.’

When it comes to pension funds specifically, Mucha says that in terms of foreign investments, these funds definitely take a low-risk approach, while Poland’s mutual funds are more active. ‘If you look at pension funds, their portfolios include big names like Amazon, Apple and Citibank,’ she notes. ‘If you look at investment funds or mutual funds, they [take a riskier approach]. They were playing a little bit on the recovery of the Mediterranean market last year, for example.’

Going local

While it might be easy enough to uncover which pension funds have the most assets under management – namely Nationale-Nederlanden and Aviva, which ‘every company coming to Warsaw is probably targeting,’ says Gątarz – that obviously isn’t enough to go on.

Kalkusiński points out that it is far from the norm for Polish funds to make much information public. ‘You need to really dig deep into their websites just to get the basic numbers,’ he observes. Even then, in most cases this information is available only in Polish, he adds.

And it’s true that there’s surprisingly little data on companies going to Poland. So while it’s unsurprising that a consultant might advise IR professionals to use the services of an outsider such as itself, in this case you may well need a little local intelligence on your side.

On a mission

One company that made its first foray into the Polish investment field in early 2015 is BASF. Tobias Höld, senior IR manager at the German giant, explains that the firm was initially approached by ‘a couple’ of Polish investors, highlighting a kindling of interest from Warsaw. ‘Then one of our analysts, who is of course always keen to get us on roadshows, also told us that Poland might be interesting, because it’s opening up its market,’ he adds.

In the end, BASF decided to go on an IR-only ‘missionary roadshow’ to Warsaw with mBank, a Polish affiliate of Commerzbank. Being a company with such a big name, however, BASF’s move prompted four or five other firms to join in as well, says Höld, with 50-60 investors signing up. Ultimately it turned into ‘a quite well-attended conference,’ he adds.

It’s certainly true that Poland is popular with German companies: of the 37 companies reporting visits to Warsaw in the IR Magazine Global Roadshow Report 2015, nine are from Germany, while Austria comes in with four companies, and three Portuguese firms also stopped off in Warsaw over the course of the year.

While Höld says that ‘maybe some minor investment approaches were taken [following the conference], but nothing that would move the needle for BASF’, the company is playing the long game and certainly plans to return to Warsaw. ‘It’s a start and it’s good to do something like this just to get information about a market and how it’s developing. It gives you access to a new market that might develop into something more significant in the future.’

This article appeared in the Summer 2016 issue of IR Magazine 

Garnet Roach

An award-winning journalist, Garnet Roach joined IR Magazine in October 2012, working on both the editorial and research sides of the publication. Prior to entering the world of investor relations, her freelance career covered a broad range of...