Repurposing the institutional equity sales model for investor relations
Do you remember when the investor relations community was focused on how the traditional corporate access model had become less effective due to regulations and related changes in buy-side and sell-side behavior? We sure do. As we head into the homestretch of a year many would like to forget, IROs are settling into a new normal, and resuming investor marketing activities in earnest after months of investor handholding and reassuring.
With the worst (hopefully) behind us, we expect IROs will look to pound the (virtual) pavement in the never-ending quest for new shareholders. Rose & Company is focused on helping our clients do just that, providing guidance and acting as our clients’ de facto institutional equity sales team. For this reason, we thought we would share our perspectives on investor marketing, how the landscape has changed and how Rose & Company was built to address a fundamental challenge most IROs face.
We’ll leapfrog the obligatory discussion of targeting, a topic that has been covered extensively. We have a unique, differentiated approach to targeting, but let’s just say that being able to add informed judgment to a targeting process is the most critical part of the process. Also, targeting is just the first step in a long journey. The ability to develop and nurture relationships with the right audience of investors is what will ultimately make the difference.
Do you remember the days when investment banks worked on behalf of firms to raise investor awareness? We do, but those days are long gone. The sell side has undergone a structural shift and ended up at a place where priorities have changed. This shift wasn’t caused by Mifid II, but those regulations didn’t help and were probably the nail in the coffin that holds the remnants of the institutional equity sales model. The days of research analyst and sales person working in tandem for the benefit of companies are over. Today’s model is focused on serving the needs of the sell side’s largest clients, which are almost exclusively hedge funds.
The old model worked well for companies as the sell side provided valuable introductions to fund managers of all varieties. It provided companies a critical last mile of connectivity to the investment community. This connectivity has been left by the wayside, and access to long-term-focused institutional investors has dissipated. These are the investors companies want as shareholders. Paradoxically, they have become the sell side’s worst customers (if they are still customers at all).
As a result, conferences and non-deal roadshow schedules are dominated by sector-specialist investors conducting channels checks and, of course, hedge funds. As many IROs are painfully aware, a wider net must be cast outside of the traditional corporate access world.
If investor relations were a typical sales process, various tools could be deployed, including call blitzes, omni-channel marketing, A/B digital campaigns and the like to triangulate the most likely buyers. In the world of the IRO, by contrast, tools are scarce, teams small and there is no must-have product to be sold. Rather, we are selling stories and a value proposition. IROs are pulled in different directions every day, and engaging in a sales process with long-term-focused investors requires commitment, bandwidth and sales tactics.
Here’s where the loss of the legacy institutional equity sales model stings. It was a model built for scale and consistency. It was a sales organization built to sell stories and value propositions.
While some may call us an investor relations firm, Rose & Company is a sales and marketing organization at heart. We have purposefully built our team over the last five years, consistently hiring highly accomplished institutional equity sales people with decades of experience and relationships. We are staffed to help our clients with messaging, communications and strategic matters, but our purpose is to act as our client’s de facto institutional equity sales team.
Our approach has been embraced by both our clients and our friends on the buy side, who appreciate being shown new investment opportunities and, equally importantly, that there is no implied cost. You would be surprised at how quickly portfolio managers’ disposition changes when they learn they’re about to get something of value for free. All we ask for is honest feedback and the opportunity to engage in an active dialogue on our clients’ behalf. It’s a very symbiotic relationship for all parties involved.
Providing feedback and engaging in active dialogue costs the portfolio manager nothing, but adds tremendous value for our clients. It shapes future messaging to proactively address key concerns, and it better enables us to prioritize future interactions and know who to call on our clients’ behalf as they execute on their strategies.
We have found that being able to identify the next steps in the investment process is key to maximizing our clients’ time and resources. All too often, our clients lament that they are not sure whether time spent at a sell-side conference was time well spent. While we can’t force anyone to invest in a company, we can certainly help our clients understand their key concerns.
As many IROs know, selling to institutional investors is not a series of sequential steps. It’s a continuum of processes and activities that lead to dialogue, relationships, feedback loops and – ultimately – investment decisions.
Rose & Company is a strategic advisory firm dedicated to helping clients successfully navigate the global capital markets. We work with our clients to evaluate, define and execute strategies to enhance their presence in increasingly globalized and complex capital markets.
For more information, please visit www.roseandco.com
