When Mifid II came into effect at the start of 2018, IR teams noticed little immediate impact on corporate access. That situation has gradually changed...
Mifid II changed corporate access?
Corporate access has undoubtedly changed the relationship between issuers, investors and investment banks
How the economics of
corporate access are changing
When Mifid II came into effect at the start of 2018, IR teams noticed little immediate impact on corporate access. That situation has gradually changed over the last 12 months. More and more people are reporting patchy attendance at conferences and trouble securing meetings at roadshows. The changes vary widely between firms, however, with region, market cap and individual circumstances all playing a role.
‘We have definitely seen an impact from Mifid II,’ says Gunhild Grieve, head of IR at German power company RWE. ‘Investors go to events where they have relationships with the sell side, but not to others. It has also become more difficult to fill roadshow schedules in some places, especially Tier 2 locations. If you go with a broker, you might have to supplement it with meetings you set up yourself.’
Under Mifid II, investors cannot pay for corporate access or research out of trading commissions. The two services must also be broken out and priced separately. Most firms have chosen to absorb the costs into their balance sheet and are now carefully scrutinizing which meetings and research services they accept.
‘Historically, those services have just been there, and we’ve not needed to articulate them, either from a regulatory perspective or for our CFO,’ says Anne Scott, investment services manager at Kames, the Edinburgh-based asset manager. ‘But now it’s a visible budget. We’ve got to be able to articulate value to our executives and, ultimately, our customers.’
The changing economics of corporate access are forcing investment banks to focus on different types of services, says Sanford Bragg, principal at Integrity Research Associates, a research and data firm that focuses on the sell side. ‘The broader trend among banks – which is true everywhere, but perhaps more pronounced in Europe – is to focus less on lower-value corporate access and more on higher-value events, such as reverse roadshows, trips, special lunches: more intimate gatherings. Consequently, conferences – being on the less valued side of this scale – have suffered.’
The shift in strategy can be traced back to 2014, when the UK’s financial regulator banned commission payments for corporate access, says Bragg. Mifid II then broadened the impact by extending the rules from the UK to Europe.
One of the main challenges for investors under the new regulation has been to work out a price for corporate access. ‘There are huge variations in rates that are being applied, and everyone has their own view,’ says Michael Hufton, founder of corporate access platform ingage. ‘Some apply a universal rate for every meeting. Others apply quite a lot of granularity: some companies will pay different amounts for one-on-one versus group meetings, inbound versus outbound requests, or for IR meetings versus senior management.’
While there have been stories of very high and very low figures, the cost of a meeting today normally falls between $150 and $500, according to various industry reports.
‘Quite a lot of people are settling at $200-$250 a meeting because, ultimately, all these fund managers want is to be in the middle of the pack,’ says Hufton. ‘They don’t want to be at the bottom end, and then feel at risk, and they don’t want to be at the top end, and feel like they’re being fleeced.’
In the UK, companies have been shielded from some of the impact by corporate broking relationships. When a broker is acting on behalf of a company, it is easier for the investor to accept the meeting without charge because there is less risk of the service appearing to be an inducement.
‘I think that naturally leads to more power for corporate brokers in terms of having greater time control over organizing roadshows for their corporate-broking clients,’ says Hufton.
Mifid II effects have not been confined to Europe. Firms in other markets are reporting similar changes, although on a lesser scale. Some global asset managers have adopted unbundling of research and corporate access across all their operations, making them more selective about which meetings they take worldwide.
A survey conducted by IHS Markit at NIRI’s annual conference this year offered a snapshot of conditions in the US: of the 50+ IR professionals polled, the vast majority reported some impact from Mifid II to their IR outreach, but less than 10 percent labeled the effects as ‘significant’.
‘The one place I have seen a direct impact is when I work on non-deal roadshows with a sell-side analyst – which is how I do all my non-deal roadshows,’ says Marisa Jacobs, global head of IR at US-based footwear company Crocs.
‘I am finding that since Mifid II came into effect, some accounts that I would like to see are refusing to take the meeting because the sponsoring sell-side firm isn’t one they now have a paying relationship with. And I am only doing meetings in the US and Canada, so I don’t have a perspective on the changes in Europe and Asia.
‘If I still want to meet with those accounts, I have to do it outside of the scope of the sell-side hosted non-deal roadshow. That makes it much more difficult logistically as I then have to restructure those events to build in time for unhosted meetings.’
For small-cap companies, any drop-off in broker support may be harder to mitigate. ‘Lesser-known, smaller companies have a huge reliance on sell-side relationships, and especially conferences,’ says Ari Davies, global head of corporate analytics at IHS Markit. ‘They are certainly the ones feeling most squeezed by that traditional framework shifting a bit.’
I am finding that since Mifid II came into effect, some accounts that I would like to see are refusing to take the meeting because the sponsoring sell-side firm isn’t one they now have a paying relationship with
With the broker model for corporate access in flux, a range of firms – such as IR consultants, independent research providers and technology platforms – are seeing an opportunity to step in and offer support.
One of the newest entrants is InterAxS, a specialist content provider set up by Lucy Richardson and Cathy Norbury, who previously led the European corporate access team at Credit Suisse. The organization will run events Norbury and Richardson say are underserved by the current sell-side model, such as roundtable discussions on upcoming IPOs, and will also offer outsourced corporate access services for banks.
Stock exchanges are also taking action: the Moscow Stock Exchange, for example, recently signed a deal with Closir, a platform specializing in providing global investor access for emerging and frontier market firms.
Michael Chojnacki, founder of Closir, points out that changes to the corporate access landscape were not started by Mifid II; they were only accelerated by it.
‘If you just put aside the regulations, you will realize that the cash equity space has been going through quite a lot of changes over the last decade or so,’ he says. ‘Over that time, the revenue model for the sell side has basically been structurally declining – despite the fact that new markets have been opening up and global assets under management rising.’
‘More than ever, companies need to be thoughtful about how they spend their time with investors,’ says Mark Pellegrino, CEO of CorpAxe and a veteran of corporate access roles on both the buy side and sell side. ‘The changing dynamics on the sell side mean that what worked last year, may not work this year. It’s up to IR teams to maximize their management return on time and ensure they are getting in front of the right investors.’
For Grieve, it’s an exciting – albeit challenging – time to be in investor relations. ‘There are further changes coming our way, with the Shareholder Directive and new responsibilities around corporate governance,’ she observes. ‘So investor relations is becoming more important within companies. There are more tasks we have to handle.’
Investor relations is becoming more important within companies. There are more tasks we have to handle
How are IR teams preparing for the future
of corporate access?
A time for experimentation
How are IR teams preparing
for the future of corporate access?
With the effects of Mifid II being felt across the market, IR departments are sizing up their options. In anticipation of less support from brokers, they are considering the best way – or ways – to fill the gap.
‘Where we’re going in corporate access, in my view, is a hybrid model,’ says Hufton. ‘Brokers will always be the core of the volume but direct will continue to grow as part of the mix, so for IR that means more complexity.’
Recent research underlines that IROs are relying less – although not dramatically so at this point – on the sell side. A net 12 percent of IR professionals globally report a decrease in their reliance on brokers for investor targeting over the last year, according to a survey of more than 200 respondents by IR Magazine. The findings, released in the recently published Investor Targeting report, show that 21 percent report a decrease, 9 percent an increase and 70 percent no change.
Despite Mifid II’s introduction, the biggest regional fall appears in North America, where a net 16 percent report a decrease in broker use for targeting (21 percent decrease, 5 percent increase), compared with a net 11 percent in Europe (24 percent decrease, 13 percent increase).
One trend that links many IR teams today is that they are in an experimental phase. Now is the time to try out new approaches to see what works – and what doesn’t.
Dutch insurer Aegon is a case in point. So far in 2019, the company has toured Scotland using a corporate access platform and tried an independent investor relations firm for a second-tier London roadshow. And later in the year it plans to organize its own roadshow to a city where it knows the investment community well, such as Frankfurt or London. ‘We are trying a lot of different things to see what works best for us, but we haven’t found the silver bullet yet,’ says head of IR Jan Willem Weidema.
A former sell-sider himself, Weidema is aware of the potential difficulties of putting on a successful trip. ‘One thing I know is that the sell side doesn’t have an easy time organizing a roadshow because the buy side can be very unpredictable,’ he says. ‘The first meeting calls you up and says, I can’t do the 9.00 am meeting – can we do 2.00 pm? And then you have to turn your schedule upside down.’
Weidema is also teaming up with other insurance sector IROs to maintain the quality of the events they attend. ‘For far-flung locations, what we try to do is embrace the same conference, so the quality of the event goes up and we see higher-quality investors,’ he says, using the West Coast of the US as an example. ‘The investors know it’s going to be worthwhile because all the European insurance companies are there.’
Out on your own
When it comes to going on roadshows alone, RWE is ahead of the pack: the German company generally deals with Frankfurt through self-directed visits. ‘It’s not that big, and there are only four or five big investors there, so that’s usually fine to set up ourselves,’ explains Grieve.
But now the IR team is broadening its list of locations. ‘We are also doing Switzerland ourselves,' Grieve adds. 'And we have started to do London in a hybrid model, whereby we set up all the one-on-one meetings ourselves, but usually still use a broker for the group meetings. We have not done that yet with the US but we could imagine it working for places like New York and Boston, where we know our key investors very well.’
Grieve is keen to point out, however, that the sell side remains an important source of support, especially for finding new investors or visiting distant locations, such as Asia. ‘We cannot claim we know everybody out there – we don’t,’ she admits. ‘And frankly we do see a benefit in the sell side and its sales people where it is their job to speak to investors, day in and day out.’
Of course, taking on more corporate access internally adds to the demands on IR teams. ‘The easiest thing about using brokers is they take on a lot of the admin,’ says James Collins, head of IR at FTSE 100-listed UK supermarket chain J Sainsbury. ‘To a certain extent, you also use the broker’s knowledge in terms of who you should contact, how you should set up a roadshow, how to set up a meeting. If you bring that in-house, that’s a whole set of requirements you might not have been set up to do beforehand.
‘So for me that’s meant one extra head: we’ve gone from a team of three to a team of four, allocating some of that resource specifically to targeting.’ J Sainsbury has also brought in a technology platform to help with the administration of roadshows, CRM and facilitating feedback.
Collins notes that, regardless of what’s happening on the sell side, he favors dealing with investors directly. ‘I think investor relations is most effective through having clear and direct relationships with the people who own your shares, and the people who potentially own your shares,’ he says. ‘Rather than sit back and rely on someone else to do that for you, we really want to push to do it ourselves.’
Frankly we do see a benefit in the sell side and its sales people where it is their job to speak to investors, day in and day out
The growth of buy-side corporate access teams and how to connect with them
Companies thinking about bringing in new technology face a broad array of options: there are more than half a dozen corporate access services on the market with elements targeted at IROs.
One firm to step back from the fray is Meetyl, which enabled companies and institutional investors to connect directly. The platform, bought by proxy adviser Glass Lewis in 2014, ceased to operate as a stand-alone product earlier this year and will no longer be promoted to external users, according to a spokesperson for the company.
‘A number of the platforms were set up to facilitate direct interaction between companies and investors, but that process just hasn’t happened as quickly as everyone thought,’ says Bragg. ‘We’ve seen one of the US platforms shut down, but the trend is in their favor.’
This year also saw major producers of IR workflow solutions move to add corporate access capabilities to their services. IHS Markit, which acquired Ipreo last year, announced it had added event management tools to its existing product suite. Around the same time, Nasdaq revealed a partnership with WeConvene, a corporate access platform that links the buy side, sell side and corporates.
The adoption of corporate access tools may be easier for US and Canadian companies given they already use technology extensively for investor targeting. In North America, nearly three quarters (73 percent) of IROs use a tech platform to enhance their targeting activity, according to IR Magazine’s Investor Targeting report. By contrast, the figure is 38 percent for Europe and 33 percent for Asia.
But around a third of respondents in both Europe and Asia say that, while they don’t use a platform now, they would consider doing so – showing many companies are open to more technological support in this area. Small caps are the least likely to use tech for targeting, finds the report, most likely due to a lack of resources.
Whatever additional support a company brings in, there’s also a need for a change in attitude, says Weidema. The sell side was not just setting up meetings – it was actively out there selling your stock. With that activity in decline, companies need to fill the communication gap, and there is a lot they can learn from brokers.
‘You have to take on the mindset of a salesperson,’ says Weidema. ‘Whenever something big happens in the industry, reach out to your largest shareholders because they could be incremental buyers of your stock that are easy to identify.’ As for his IR department, Weidema is holding back on any major adjustments at this point. ‘Let’s first see whether the experimental phase leads to new insights, and then we can think budget-wise and people-wise whether we want to change,’ he says. ‘Today is very different from a year ago. And my guess is that in a year from now, it’s going to be very different from today.’
Today is very different from a year ago.
And my guess is that in a year from now,
it’s going to be very different from today
The growth of buy-side corporate access teams
As IR teams plan for more direct contact, investors are doing the same. In recent years, the number of buy-side firms with internal corporate access teams has steadily increased and now stands at more than a dozen.
What’s more, five of those companies now plan to put on their own series of investment conferences – with the sell side not invited. The development highlights how serious investors are about exploring new models for corporate access.
Companies now face the challenge of getting to know the internal teams, and each has its own unique features. But ultimately they should prove a valuable resource to IR departments that want to build direct relationships with investors.
Fidelity Investments has had someone in a corporate access role since 2002 – but for the rest of the buy side, this is a more recent development. Norges Bank Investment Management (NBIM), which manages Norway’s huge sovereign wealth fund, created its team in 2013. The middle years of the decade saw a number of hedge funds follow suit. And since 2017, major asset managers like BlackRock, Capital Group and T Rowe Price have built out global operations.
‘We’re seeing several different means of corporate access on the buy side manifesting themselves,’ says Davies. ‘I would say the hedge fund community, as a result of Mifid II, is finding itself at a point where it needs to ensure it can get the access it wants. Hedge funds are putting on a different face, becoming more acceptable, talking more about their strategies.
‘Meanwhile, large institutional investors are running a variety of events on their own, including reverse roadshows. Some of the teams are going as far as having corporate access teams that not only have a top-down structure, but also go on a sector-by-sector approach. Each firm is acting a little differently in that respect.’
Overall, the investment community has slightly pulled back on its use of the sell side to co-ordinate meetings, according to IR Magazine research. A net 13 percent of investors globally have lowered their reliance on brokers for corporate access over the last year, while 73 percent report no change, finds the Investor Targeting report.
Europe and North America are leading the changes: a net 27 percent of investors in Europe say they have decreased their use of brokers for arranging access, while a net 25 percent of investors in North America report the same.
The biggest teams have targeted global coverage with staff in multiple cities. BlackRock, for example, has a group of 12 spread out across New York, London and Hong Kong, helping to co-ordinate events such as site visits, field trips, roadshows and conference calls.
While duties vary from firm to firm, they normally include managing corporate access arranged both via the sell side and directly with companies. The teams also educate IROs on how the investment firm is organized and who the most appropriate people to meet are.
‘I would say you need to get to know these people – lean on them to understand the inner workings of that organization as much as possible,’ says Richardson. ‘If you go to those representatives directly, rather than go through a broker, I think you’ll get a much more comprehensive answer.’
The NBIM way
NBIM has been the most public in calling for companies to get in touch. In December 2017, the month before Mifid II came into effect, it sent a letter to around 1,000 of its largest holdings asking them to request non-deal roadshow meetings directly because it had a policy of not paying for them.
It’s a message Edward Young, head of corporate access at NBIM, reiterates today. ‘We would encourage companies to engage with us directly and use the corporate access team to help them navigate the fund,’ he tells IR Magazine.
We would encourage companies to engage
with us directly and
use the corporate access team to help them
navigate the fund
‘We have a culture of sharing meetings at NBIM, and offering an executive management or board-level meeting through the corporate access team ensures that all relevant individuals in our organization are notified the meeting is taking place and are given the opportunity to join.’
While Mifid II has not led to a material change in the way NBIM conducts corporate access, the firm has seen a jump in the number of non-deal roadshow meetings organized directly since the regulation came into effect, says Young.
‘Before implementation we were arranging the majority of our trips –where portfolio managers travel to visit companies – in-house, and this has not changed,’ he explains. ‘We continue to rely on the sell side for select conferences and to facilitate a significant number of our non-deal roadshow meetings.
‘That said, we have seen an increasing number of companies arranging roadshows themselves and building out capabilities within their IR teams in order to do so. The number of non-deal roadshow meetings NBIM arranged directly with companies doubled between 2017 and 2018.’
Setting up shop
The man who set up NBIM’s team six years ago is now director of corporate access and research services at Wellington Management. Hugo Sanders moved to the private investment firm, which manages more than $1 tn in assets, in June 2018 and has built a new six-person team based in Boston, London and Hong Kong.
‘Mifid II was a factor in our decision to build out a corporate access team, but it wasn’t the only factor,’ Sanders explains to IR Magazine. ‘We also saw an opportunity to co-ordinate our outreach more efficiently and to grow and strengthen our relationships with investor relations teams globally.’
For companies thinking about getting in touch, Sanders’ advice is to ‘use the corporate access team as a resource to better understand the complexities of our firm and partner with us to have your corporate access efforts be more targeted and impactful.’
He adds that, when building a forward calendar for roadshows or other engagement, companies should make contact ‘at the beginning of the planning process’ to ‘help optimize access and co-ordination’.
Wellington – along with Capital Group, Fidelity Investments, NBIM and T Rowe Price – are the five firms that have grouped together to put on their own investment conferences. The first installment, planned for March 2020, will see CEOs of consumer staples companies invited to Boston for a series of one-on-one meetings.
The event will offer a better level of access to the chief executive than you would normally expect, says Sanders. ‘We saw an opportunity to partner with a few other asset managers to create something differentiated and impactful for our portfolio managers and industry analysts: 90-minute meetings rather than meetings lasting 30-60 minutes, and with CEOs only – that’s something that's now rare with sell-side conferences,’ he says.
‘The changes are evolutionary,
The variety of approaches to corporate access across the buy side is causing some confusion among IROs. ‘It’s not always easy, especially for smaller IR teams, to keep track of which buy-side firms prefer direct corporate access,’ says Weidema. ‘It makes it hard to know whether you should go through brokers or go direct.’
Anecdotally, IR professionals have reported a few other issues while working with the new teams, such as long waiting times for responses.
‘In terms of responsiveness, I think there will be the same issues going both ways,’ says Davies. ‘There are going to be certain companies that have different priorities from others. There are also going to be periods of time when people are busy doing other things, such as earnings.
‘We have clients that have never reached out before; it’s always been through the broker. And I think that conversation is something very new for both sides in some respects. The corporate access shops on the buy side are helping with that conversation but they are also trying to scale up.’
For both companies and investors, the balance between broker-led and direct engagement is shifting. No one knows how far the pendulum will swing, although few are betting against the sell side retaining a central role.
‘We expect that things may evolve, but we believe brokers will remain important partners,’ says Sanders. ‘Our overall goal is to partner with brokers to leverage their expertise and access while complementing that with our direct efforts to round out the research content for our investors.’
IR Magazine research finds that a net 12 percent of investors saw a decrease in their use of brokers for corporate access over the last year. The changes taking place are evolutionary, rather than revolutionary, says Pellegrino.
‘This is just the first or second innings of this,’ he says. ‘The vast majority of corporate access is still going through the sell side. And it’s very difficult to replicate or change that model overnight.’
Meanwhile, other buy-side firms must decide how they will approach the growing demand for direct contact. Budget constraints will prevent some from hiring internally. As with companies, investors are looking at technological options and IR specialists as part of the solution.
‘I would think most asset managers are going to need some mechanism or other to make sure there is a gatekeeper,’ says Davies.
‘It’s going to come down to how they want their people spending time: do they want their analysts or portfolio managers setting up meetings and logistics? Or do they want them doing research on companies? If you think about it that way, they are either going to bring it in-house or they are going to pay somebody else to do it.’
Our overall goal is to partner with
brokers to leverage their expertise and access while complementing that with
our direct efforts to round out the
research content for our investors
The evolution of corporate access and the growth of the IR role
The evolution of corporate access
And the growth of the IR role
Over the past 20 years, several flagship regulations have forever changed how corporate management, brokers and asset managers interact, creating corporate access as we know it today and elevating the role IR professionals play.
Mifid II might be the latest regulatory change to upend the status quo in corporate access, as it forces the unbundling of payments for research and corporate access from trading commissions, but there have been a series of notable regulatory changes since 2000 that helped to create corporate access as it is today. The end result is an investment community that considers meetings with management and IR as critical to its investment process and an IR community that has firmly established itself as central to the idea of maximizing shareholder value.
As we pass the two-year anniversary of Mifid II’s implementation, it’s a good time to understand how regulatory change during the last 20 years has changed corporate access and, in turn, redefined the role of investor relations teams.
On October 23, 2000, the SEC’s Regulation Fair Disclosure (Reg FD) rule came into effect. Prior to
its passing, investment banks enjoyed a privileged relationship with senior executives at many public companies. Under this system, material non-public information could be disclosed to analysts ahead
of any public announcements. Analysts were seen
as disseminators of this information to the marketplace, helping to push each stock to its fair value while the investor relations teams often
played more of a supporting role for the CFO and management.
Institutional investors with the largest assets and commissions, and thus the best relationships with covering analysts, were generally the first to find out about market-moving information. As the SEC looked into how analysts were being briefed, it noted that when analysts or institutional investors were given information ahead of an earnings call, they were able to profit or avoid loss at the expense of those investors that didn’t have the same information. The regulator wanted to end the process of selective disclosure and effectively did so by enacting Reg FD – which created a level playing field and made it harder for investors to have an edge. As written, the rule applies to brokers, investment advisers, institutional investment managers, buy-side and sell-side analysts and shareholders who would trade on the basis of information gleaned.
Company executives could no longer discuss earnings results or estimates, mergers or acquisitions, new products or contracts or any other material information with other market participants privately. When accidental selective disclosure occurs, companies must make the disclosed information public within either 24 hours or by the opening of trading the next day.
Reg FD forever changed the relationship between investment banks and senior management but, more importantly, it turned the IR seat into one of much greater consequence. Companies now relied on IR teams to ensure they were Reg FD compliant,
and to be the daily point of contact for investors
looking to hear directly from management once their sell-side counterparts’ information edge had been marginalized.
Reg AC and the Global Settlement
The SEC didn’t stop there on its journey to create greater transparency in investment banking. In April 2002, it announced a formal inquiry into industry practices concerning research analysts. It vowed to explore the potential for conflicts of interest to arise in a variety of places, including the public recommendations of analysts (stock ratings), the compensation of analysts and how banks were compensated around banking deals.
There was a flurry of regulatory activity, including rule changes for the National Association of Securities Dealers (NASD) and the NYSE, all of which ultimately led to the enactment of Regulation Analyst Certification (Reg AC) on April 14, 2003. The rule aimed to ‘promote the integrity of research reports and investor confidence in those reports’, asking that analysts certify their research as an accurate and truthful representation of their own views and requiring them to disclose whether they received any compensation or incentives in connection with it. The intended result was a research product that was unbiased and impartial.
Shortly afterwards, on April 28, 2003, the Global Research Analyst Settlement (Global Settlement) was formalized between the SEC, NASD, NYSE, the New York State attorney general and 10 of the largest investment banking firms at the time. As part of the agreement, the 10 firms paid $1.4 bn in fines for violations of securities laws during the dotcom boom – including issuing fraudulent research reports, receiving payments for research without disclosure and issuing reports that violated the principles of fair dealing.
More significant than the fines, however, were the changes the agreement brought into effect. Suddenly firewalls were put in place between banking and research, budget allocation for research had to be independent from banking, research analysts were prohibited from attending roadshow meetings during the advertising and promotion of deals, and analysts’ ratings history had to be disclosed. While these rules applied only to the 10 investment banks that signed up to the settlement, there was widespread adoption and the rules were formalized in 2010 as part of the self-regulatory organization rules adopted by the Financial Industry Regulatory Authority.
The fallout and rise of corporate access
By the mid-2000s, following these landmark regulations, the job of sell-side analysts evolved considerably. They’d been previously compensated via investment banking deals and had enjoyed a privileged relationship with corporate management. Many analysts left the sell side to join the emerging hedge fund community, which promised outsized rewards for strong investment performance.
Just as today post-Mifid II, many industry pundits called it the end of sell-side research, but that proved unfounded – as it will again today. The focus shifted to writing differentiated research, providing insights to the investment community and assisting with idea generation. Sell-side research evolved to meet the demands of an increasingly complex buy side, and core to that offering was corporate access.
Many analysts reinvented themselves as shepherds of corporate management with the help of emerging corporate access desks that handled the execution of these events. With the promise of introducing management to new shareholders, helping to drive their stock price, analysts became essential in the relationship between institutional shareholders and corporate management.
While corporate access teams originally focused on keeping management relationships warm between investment banking opportunities, that all changed by the mid to late-2000s as equity investors, looking to engage with management teams directly and complement the research they were getting from the Street, started explicitly directing a material part of their commissions for access to management meetings. Corporate access had now been established as one of the primary drivers of commission for the equities business across the Street and was rapidly becoming a necessary component of any profitable equity franchise.
It didn’t take long for brokers to respond to the demands of their clients. Corporate access became a high-margin business centered on non-deal roadshows, field trips and conferences. While conferences had long existed as a platform for investment banks to highlight their broad relationships, they morphed into a speed-dating-like event where efficiency of management access reigned. The conference calendar exploded with events, management teams were inundated with requests and there was no shortage of opportunity to meet investors for most liquid companies.
Investor relations seized the opportunities resulting from these changes. Just like they do today, IR teams stepped in to ensure the meetings with management were the right meetings, that investors were prepared with the information they needed to make informed investment decisions in a compliant way, and that the return on executive time was maximized. Today, IR teams are increasingly the central information source for companies as they expand beyond financial reporting to include investor stewardship and ESG, and they are much more likely to meet investors on their own.
Then comes Mifid II
Mifid II has thrown another curve in the evolution of corporate access and, while the outcomes are still debated, it is likely even more onus will fall on IR teams to either conduct investor outreach on their own or ensure their company is meeting with the investors best placed to own their shares.
The unbundling of research and trading disseminating from Europe has obliged the sell side to put a price on all forms of research it is offering and, as investors consolidate their trading relationships, the price discovery has extended to corporate access as well. Just as it has in the past, IR will seize this opportunity and be a successful steward of its company.
The regulatory environment will surely evolve as more landmark regulations emerge in the next 20 years, but the fundamental need for investors to both learn about their potential investments and gain trust in the management of these companies is likely to be at the core of active investment for the foreseeable future.
The last 20 years of change helped increase the prominence of the investor relations role – and it looks promising that this will continue for the next two decades.
CorpAxe is the world leader in corporate access and resource-management solutions for the investment community. The CorpAxe suite of products allows investors to discover, originate, manage and value resources critical to the investment process, while meeting the demands of a rapidly changing regulatory environment.