Companies need to think about how to get to grips with the changing Mifid II landscape, according to new UK IR advisory company Heartwood Partners.
Simon Young, Heartwood Partners co-founder, says: ‘Corporates need to appreciate the changes in the industry. Mifid II’s aim was to increase transparency in financial markets. Unfortunately, what the regulation has done has raised the cost [of doing that], which is an unfortunate by-product. Companies must realize they will have to do more. And unfortunately it is not going to come for free.’
This means companies are having to do more to get their message heard. ‘To do so, they can commission external third-party research or appoint a second or third corporate broker to ensure coverage by research analysts at that broking house, and some companies have beefed up their IR teams,’ adds Young.
Alex Schlich, the other co-founder of Heartwood, points out that corporate access needs to be reconsidered carefully in the Mifid II environment.
‘Brokers will not have the same relationship as they did in the past: the number of relationships brokers have with institutional fund managers is going down,’ he explains. ‘So companies need to think about how they can access investors, as they will not be able to access the same investors as they previously did through their broker.
‘Companies will have to think how they might communicate better through their own IR website and via videos to explain the investment proposition in a clear and concise way. And some of the roles that were traditionally done for them by corporate brokers they need to take on themselves, or use an advisory specialist to help them. That is particularly true for new companies to market that may be unfamiliar with what goes on.’
Highlighting some of these points, a Heartwood Partners survey of 300 private and 50 institutional investors reveals that as a result of Mifid II, nearly 60 percent of fund managers are receiving less contact from sell-side brokers, 40 percent are receiving less sell-side research and nearly half of fund managers surveyed say brokers expect to get paid to provide company access, even though 45 percent of fund managers are unwilling to pay for it.
Crucially, the survey reveals that meeting management is still deemed the most important factor in making an investment.
To help address some of these issues – especially for smaller companies – is the rationale behind Heartwood’s creation by Schlich and Young who, as veteran fund managers, have seen the Mifid II narrative develop for some time.
‘At the small-cap end of the spectrum, it is harder for companies to get the coverage they once got and they need to think about engagement with investors and private clients – and we can help them do that,’ says Young.
