Technology provides the opportunity to increase return on investment from shareholder outreach
While it is now official that MiFID II will be delayed by a year, ongoing due diligence and planning in preparation for 2018 will drive appetite for new approaches toward accessing research as well as company management by institutional investors. As a result, we expect this to also continue spurring the growth and availability of new shareholder targeting and engagement products for corporate IROs.
MiFID II includes a set of reforms that will overhaul how securities and commodities are traded and how investment services are paid for in Europe. Of particular note is that institutional funds will not be allowed to pay for corporate access with soft dollars and that a separate research budget will have to be set up to pay for research services.
In anticipation of these changes, the institutional investor community is becoming more open to, and in certain cases actively looking for, alternative solutions to accessing meetings with companies. Larger funds that operate on a global basis, in particular, are investing time and resources. Others, via their proactive due diligence, are looking to complement their traditional way of accessing corporate management, including increasing their internal corporate access staff ‒ recent articles highlight the departure of various investment bank corporate access desk members to the buy side to help funds build internal capabilities.
Shrinking budgets
We believe declining research sales and trading profits, combined with these upcoming regulations, are causing banks to continue shrinking the budgets of their sales and corporate access teams. Conversely, with fewer industry resources and increasing investor marketing requirements, company executives and IROs are investing more time actively managing their own investor marketing effort.
The task of engaging investors focused on investing in a particular industry and market capitalization is limited by the quality of data and the company’s relationship with individual funds. Furthermore, the process of setting up actual meetings can be tedious and time-consuming.
On the opposite side of the coin, portfolio managers are constantly on the hunt for new and unique investment ideas but have limited budgets to spend on this access. As a result, investment firms have grown stricter in accepting meetings from banks and service providers that they do not conduct business with.
IROs must ask themselves whether they are getting enough opportunities to expand their investor base with the right investors. Often, the banks and service providers that help the company to set up meetings are dealing with the same clients year after year in any particular region, resulting in the same meeting options.
More problematic is that the research firms may not have connections to additional, well-suited investors in the region, so adding an additional channel to set up meetings has the potential to improve return on investment (ROI) on a marketing day.
Untapped assets
When working with banks, knowing which are strong in specific regions or cities and firmly dictating requirements can potentially result in more productive marketing. Specifying a desired mix of investors (existing vs prospective), type of funds, asset size and other factors can help set IROs off in the right direction.
It is important to keep in mind that a number of asset managers with relatively large assets under management that are longer term-focused ‒ namely, registered investment advisers (RIAs), family offices and pension funds ‒ are sometimes being left out of the traditional marketing channels. For example, RIAs and family offices are estimated to manage more than $1 tn in assets in the US alone, but many have limited or no relationships with research firms given they do not generate significant commissions.
Accessing these alternative channels or under-the-radar opportunities will require IROs to potentially invest significant time and money, something most do not have the luxury of doing. Previously, that might have entailed subscribing to an expensive database and using filters to put together a list of opportunities to call and figure out whether there is overlap and interest.
Fortunately, over the past few years, a number of new technology companies have developed products that facilitate accessing these opportunities without having to invest significant time or money. And with regulations spurring adoption by the institutional investor community, we expect to see growing investment in this segment of the FinTech market.
A comprehensive investor marketing program should include:
‒ Knowledge of all relevant investment funds in any city that may have an interest in the company
‒ Access to all potential investors in a particular region, including funds that fall outside of traditional marketing channels
‒ Comprehensive analytics on investors that have the highest potential to invest
‒ IR tools that help make the process more efficient and effective, including a system to track and determine ROI on time spent marketing.
To improve shareholder targeting, look for IR technology tools and services that provide:
‒ Intelligent and accurate investor information: Given the advancement in technology, IROs today have access to multiple products that did not exist even five years ago, such as web-based software that links them directly to a live institutional investor community where fund managers self-curate their interest and overlap with particular companies
‒ Workflow solutions that improve efficiency: With better analytics, today’s software tools can help minimize time spent cold-marketing, while maximizing response rates and transparency by directly linking IROs to institutional investors
‒ End-to-end solutions: Products that can be self-driven or may have a services component can help simplify the process of setting up meetings or deal with logistics on actual ‘day of’ marketing as well as providing post-marketing analytics and feedback to the company.
Questions to ask before settling on your IR strategy for 2016
‒ What primary challenges exist today in attracting additional investors?
‒ How can the impact of marketing days be improved within your pre-existing schedule?
‒ Can new, technology-based productivity applications help improve efficiency in time spent on hitting the right investor targets?
Jeffrey Tha is co-founder and CEO of Meetyl, a fully owned subsidiary of Glass Lewis & Co
