Nine out of 10 IROs in the US want better regulation of HFT, dark pools and short selling
After three years of financial crises, recessions and stomach-churning volatility, is IR expanding in size and strength? Or is it contracting and risking turning on itself in a vicious circle?
According to BNY Mellon’s latest ‘Global trends in investor relations’ survey, the bank’s seventh annual study, the answer is that IR is firmly in growth mode.
Consider some of the headline numbers: 59 percent of companies meet with sovereign wealth funds, up from 47 percent in 2010; 40 percent are targeting emerging markets investors, up from 36 percent; 65 percent produce CSR reports, up from 50 percent (the number nearly doubled in North America and Asia-Pacific, bringing them more in line with Western Europe); and in the most dramatic jump, 20 percent of IR teams use social media compared to only 9 percent the last time the survey was conducted.
One assumption might be that, like corporations in general, which cut costs in 2008 and 2009 and today have better profit margins on top of rebounding revenue, IR teams are doing more with fewer resources. Yet the size of IR teams and their compensation levels are also working upward, or at least holding steady: 90 percent of IR teams world-wide have not downsized in the last three years and 28 percent plan to add staff in the next 12 months.
IR budgets show a more mixed picture, with average spending growing 67 percent in the Asia-Pacific region, 30 percent in Latin America and 20 percent in North America, but dropping 30 percent in EEMEA and 13 percent in Western Europe.
BNY Mellon surveyed 650 IROs in 53 companies, up from last year’s sample of 371. Turnout was boosted by the cooperation of more than 10 regional investor relation societies, which invited their members to participate. The full ‘Global trends’ report is available for downloading at www.bnymellon.com/dr.
Guy Gresham, New York head of the global IR advisory team in BNY Mellon's depositary receipts group, identifies four broad themes: an increase in demands on IROs’ time; expanding marketing opportunities; a formalization of investor relations; and an ambiguity toward capital markets reflected in calls for increased regulation of equity trading mechanisms.
Gresham notes that investors and analysts keep asking for more from IR, but there’s a limit to how much time management can commit. For example, companies get an average of 12 invitations to conferences but participate in only six, and average analyst coverage is 15 but companies market with only five.
Next, BNY Mellon sees clear growth in the clout of SWFs, as well as their willingness to engage with companies. Plus, many companies are eager to market to investors in emerging markets and sometimes even to list there.
Under the heading of formalization, Gresham groups the spread of transactional communications policies, crisis communications policies and CSR reporting. ‘IR has gone from a tactical role to more of an embedded function with corresponding policies and procedures around it,’ he says.
Finally, the BNY Mellon team was surprised to uncover widespread concerns about trading mechanisms: 89 percent of US companies believe more regulatory oversight is needed for high-frequency trading, dark pools, short selling and hedge funds. The number is lower for non-US companies, only 70 percent, while around the globe, 50 percent of companies say short selling negatively affects equity trading.
Gresham says that while it is not yet clear if there is significant cause for worry about market structure, his corporate advisory group vows to do more to help educate issuers about it.
