MiFID II is changing the issuer’s buy and sell side dynamics in Europe
21 June 2018
By Amit Sanghvi
MiFID II came into effect just over six months ago and it has already dramatically changed the way IR teams interact with the buy-side and sell-side. The regulation has changed the business model for corporate access and equity research, which asks more of IR teams but also poses an opportunity for them to play an increasingly hands-on role in investor targeting and engagement. We recently caught-up with three leading IR professionals based in Europe, to discuss how MiFID II is changing their approach to targeting, roadshows and conferences, as well as IR tools and resources.
The issuer’s relationship with the buy-side
Many commentators expected to see an increase in direct engagement between issuers and investors, and that has indeed been the case for Gunhild Grieve, Head of Investor Relations at RWE AG. “We’ve definitely felt an increase of incoming calls to discuss results, as well as from investors with specific questions about our business performance,” Grieve says. “We’ve also started reaching out in advance of a roadshow to ensure there’s interest, especially if we have the feeling that the response from the broker was lacking.”
According to a recent survey from IR Magazine, only 10 percent of buy-side analysts and eight percent of portfolio managers prefer to be invited to roadshows by sell-side brokers. This clearly highlights the extent to which investors are open to reaching out to issuers and expecting a quick response. But it also shows that they’re anticipating to be contacted for meetings, directly by their portfolio companies.
Source: IR Magazine
Tom Hull, Investor Relations Manager at Aggreko, has always felt that the buy-side was willing to reach out to him, but recently he’s noticed a difference in the tone of the outreach.
“What’s shocked me is investors’ concern about being left behind,” he says. “We’ve had to be much more conscious of that, making sure that we’re taking extra steps to ensure that investors are included on target lists, being engaged, and not feeling like they’re missing out.”
All three of the IR professionals we interviewed confirm that they’ve received letters from institutions who don’t intend to pay for meetings, but want to be included on target lists for roadshows (such as the letter that Norges Bank Investment Bank sent to its portfolio companies at the end of last year).
For Hull, this means emailing his investor target list, ahead of a roadshow, to tell them which broker he’ll be using and to watch out for the invitation. That way, if the investor hasn’t heard from the broker, they know to contact Hull directly to set-up a meeting.
Given this changing dynamic between the buy-side and sell-side, it’s increasingly more important for IR teams to have effective shareholder ID and targeting tools. Greater intelligence about your investor base means that you can be more prescriptive to the sell-side and more reassuring to the buy-side, so that they know you’re striving to meet with them.
The issuer’s relationship with the sell-side
Alex Budden, Vice President of Communications and Investor Relations at Lundin Petroleum, has experienced the biggest change in his relationship with the sell-side. He’s seen the number of active analysts covering his company fall from 25 to 23, as well as several other brokerage firms change their individual analysts. For him, this is actually good news. “We’re losing some analysts and some might cover us less. But I’d rather have a group of 10-15 high-quality analysts than 20-25 who dip in and out. Not all analysts are created equal and you have to spend more time with those that dip in and out,” he says.
Due to the rise in direct engagement from investors, he’s in a position to ask for more creativity and engagement from the analysts covering his stock. “Given that we know who our investors are through shareholder ID, if an analyst comes with just the offer of meetings and conferences, that’s not value-add,” he adds. Recently one of his analysts approached him with the idea of hosting a webcast focused solely on a company asset that the analyst felt was being underappreciated. It was a success.
Grieve asserts that the increase in direct engagement hasn’t meant that she leans less on the sell-side, but rather she’s felt the need to have a significantly more open relationship with the brokers with whom she works. “I fully understand that there may be investors who are not under contract with a broker and I’m more than happy to approach them myself, but I need to know that. So I really expect the broker to be frank from the beginning about their strengths.”
All three IR professionals mentioned that there’s been enthusiasm from the sell-side to market their companies in North America, an issue which isn’t covered by MiFID II. This means that IR teams need a clear targeting strategy to make the right assessment on whether a trip to the US or Canada is worth the expense.
What MiFID II means for IR
Beyond all of these recent changes, the evolving relationships with the buy and sell sides create new tasks for IR teams. At RWE, Grieve has actually expanded her IR team, to help the IR team with targeting and to capture feedback from investors. “We were always very tightly staffed and I wanted to make sure we could handle our workload. We do a lot in-house on the targeting front, but if we start losing insight from the sell-side and are not able to cover the market 100 percent ourselves, then we may need to revisit this,” she says.
As more is asked of IR teams to manage and engage their investor base directly, the ‘relations’ part of IR is being brought to the foreground. A shift in dynamics between the sell-side and IR teams may inevitably mean that more accountability is placed on IROs for both the direction and quality of roadshows. This is why growing investor outreach data, as well as integrating targeting and pipeline management tools will be particularly welcomed by IR professionals. Data-backed targeting can justify a decision to meet with a specific investor, while pipeline management tools help ensure that senior management’s time is spent wisely.
For Hull, one of the main takeaways from the first six months of MiFID II is to add more key content to the IR website, as a means to fill any information voids left behind by the sell-side. “Increasingly the website is somewhere for our potential investors to go, so that they can find information that they might have otherwise got from the sell-side. We’ll be listening much more to investor feedback and their regular questions, to see if we can increase the level of disclosure we’re putting there.”
Amit Sanghvi is Managing Director of Q4 Europe and blogs regularly about trends in IR and capital markets.