Taking a Strategic Approach to Investor Engagement

4 February 2020

By Vanessa Hartung

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For many Investor Relations Officers, a key obstacle in planning and executing a successful NDR or other investor event is attracting investors to attend (and facilitating engagement). But what if you’re actually facing the opposite problem? What if you have such an abundance of investor interest that there aren’t ENOUGH seats for everyone who wants to attend? This might be a good problem to have, but for many large and mega-cap IR executives, determining which investors to invite can present a real challenge.  

“It becomes critical to take a strategic approach to targeting and engagement when investor interest is high and management time is limited,” said Michael Snell, Manager, Investor Relations at Q4. “The way I see NDRs and the IR calendar in general is to think of  management’s time as a token system. The executive team – CEO, CFO, etc. – have a set number of tokens, or hours, that they’re able to allocate to IR in a given year, and it is the role of the IRO to allocate them as effectively as possible.”

While IROs can be in the fortunate position of having members of the C-suite that are receptive to meeting shareholders as well as nurture non-investors, their time is almost always limited. Michael adds, “This means that before executives are taken on the road, IROs must use a combination of tools and data analysis techniques to strategically select investors and ensure that management’s time is spent with only the most appropriate contacts.”

Who should be in the room?

Key to delivering ROI from investor events and roadshows is to seek a blend of appropriate investors, rather than just ensuring that all seats in the room are full.

Michael recommends thinking about categorizing target institutions into three main buckets:

  1. Top long-only holders that are located at or close to the destination of your NDR. This can help reinforce an existing relationship by providing those top holders access to management.
  2. Underweight institutions whose historical investment patterns suggest they are well positioned to invest in a company of your current financial profile. This provides an opportunity to nurture, and potentially progress, these relationships at an opportune moment for maximum ROI.
  3. And finally, a few slots should be reserved for non-holders with minimal to no prior introductions to management. The objective here is to broaden the company’s capital network with good quality investors and not be limited by the universe of existing shareholders. To that end, it’s essential that these “wild card” investors are thoroughly analyzed for compatibility and, ideally, pre-vetted by IR for alignment with the equity story.

Michael cautions that this approach requires an accurate view into your institutional base to be effective, sharing that without that it would be hard to know where to start. Another important filter, that is sometimes overlooked, relates to whether or not investors have funds to deploy.

“Due diligence in this area is imperative for effective targeting. Again, filling a room with investors who want to have a conversation with management is great, but are they in a position to invest? The bottom line is that we’re looking for targets that have the mandate to invest in your stock.”

Tools and techniques to update your approach

Arguably the most effective way to connect corporate issuers with the institutions most likely to buy their stock is, simply, by accessing and understanding data. Artificially intelligent targeting can put huge amounts of data driven insights at the IRO’s fingertips, which can be used to understand which firms/funds are likely to buy shares in the near term.

“Many of our clients have noted that when it comes to targeting, they don’t know what they don’t know. Data and AI can be game changers on this front. Proactively improving the accuracy and quality of targets can dramatically increase ROI for your NDR by putting management in front of the right investors at the right time,” says Michael.

AI targeting takes into account a quantitative assessment of the investor, based on such factors as portfolio stocks’ valuation versus ownership over time, stock performance benchmarked versus peers and the broader market, plus typical data points like total assets under management, turnover history, investor style etc. This enables IROs to focus on building relations with investors who will add the most value to their shareholder base today.

AI targeting leverages billions of individual data points to paint a clearer picture to help IROs determine the value of an institutional holder. Through deep analysis of historical correlation and regression, the AI algorithm generates a combined probability and “matching” score, specific to every firm, fund, and stock. Unlike simplistic filtering-based targeting solutions (which merely compare generic characteristics between companies and portfolios), AI targeting determines the likelihood of a firm/fund to buy a given security, in conjunction with the quality of that investor for the corporate issuer.

A hybrid approach

Data can be extraordinarily valuable to the targeting process, especially when pieced together into a qualitative commentary around both the current shareholder register and the broader investor landscape. That said, IROs should look at data and analytics as a way to augment, not replace, traditional targeting processes.

“I think the most effective approach is a hybrid one,” explains Michael. “Even a robust AI targeting solution is not intended to replace insights learned from speaking with investors.”

He adds: “We see a real opportunity here to step into the IROs workflow and to strip away noise on their behalf. Our role is to approach the targeting process with a clear lens that can provide recommendations based on advanced data analytics. As well to pinpoint specific individuals at target firms for them to speak with. Access to a strategically and scientifically vetted list of targets puts the IRO in better control of the process, including how best to use their management team’s limited time availability.”

Prepare for the marathon

Regardless of your current approach, targeting very much requires a long-term view of nurturing relationships. IROs can spread the current equity story, but if that changes for any number of reasons, it helps if a repeatable data driven strategy is in place to build a target list that could resonate with the new story. Data is one very effective way to better understand who to connect with, when, and why.

For more information on AI targeting, visit our website, or read our blog Leveraging Strategic Targeting to Maximize IR Resources to get first-hand advice on the best way to approach your targeting efforts. 

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