You can improve liquidity by targeting private client fund managers, says Simon Courtenay
Q. How can I improve demand for smaller parcels of shares and boost liquidity?
A. Many quoted companies are extending their IR program to include the UK’s private client fund managers (PCFMs).
According to the latest research, this sector manages more than £500 bn ($784 bn) of assets, drawing its clients from high-net-worth individuals, family trusts and charities.
PCFMs are an excellent source of fresh demand for quoted companies’ shares as they deal in smaller volumes, which can help improve marketability and liquidity in the trading of companies’ shares.
PCFMs have enjoyed a ‘good’ recession and continue to report inflows of new funds as low interest rates force savers to move assets away from deposit accounts.
There are more than 150 PCFMs in the UK, and the main firms – Rathbones, Brewin Dolphin, Charles Stanley and Investec Wealth – have a broad network of offices located throughout the country.
Each office is independent and has a significant number of individual portfolio managers, reflecting the diverse nature of its client base.
Long term clients
Most PCFMs offer traditional advisory stock broking services and discretionary portfolio management. Their clients tend to be long-term investors, so they do not promote volatile trading.
Many people think PCFMs will invest only in blue chips but, while risk assessment is increasingly important, many have agreed a remit with their clients to scour the entire market looking for suitable opportunities, regardless of size.
Also, many PCFM firms promote investing in structured Alternative Investment Market portfolios that can help mitigate the impact of inheritance tax.
If we ever see a return of IPOs, PCFMs have funds to invest. For now, they live to invest in value situations in the secondary market.
For many, a balance between income and capital growth is important and some clients’ appetite for risk is greater than others, so the PCFM will consider stocks perceived as higher-risk in sectors as diverse as bio-technology, property, support services, healthcare and media.
Meeting style
Most PCFMs will meet the company for a one-to-one introductory meeting to understand the business and the dynamics of the market.
Unlike institutional investors, many of these investors do not need to see the CEO and finance director in every meeting. In fact, it can be useful to introduce local directors or senior managers to regional meetings to help present a local angle.
It remains a very fragmented market and each PCFM firm has a different structure. With specialist knowledge of the sector and by investing a little time to include PCFMs as part of your IR program, companies can reach a significant group of large-scale, long-only investors that will buy small parcels of shares for their portfolios.
They can boost liquidity and play an important role in filling the void left by institutional investors, many of which are ignoring smaller companies.
Simon Courtenay is managing director of Broker Profile in London.
