Running a successful IR program has become more challenging than ever before. Today’s IR professional is pulled in multiple directions and expected to be an expert on all things. With a constantly changing regulatory landscape and a reduced sell-side, IR teams everywhere have to add increasing value with limited resources. Here’s a look at their top four challenges in 2019 and beyond.
1. Finite Resources
It isn’t news that IR teams are being stretched thin. According to IR Magazine’s IR Function report, the average North American IR budget in 2017 was $527,000, which is $50,000 down from the year before. To add insult to injury, the average IR team size in North America is just 2.2 professionals, which is the smallest number of any region across all cap sizes. And this number continues to drop.
Things are especially challenging for smaller caps. There is an $875,000 difference between IR budgets at small caps, compared to those at mega-caps. Typically, there are more than four times as many IR practitioners at a mega-cap than small-cap. European small caps seem to have it the hardest, with less than half the budget of their North American small-cap counterparts.
2. Time Management
While resources are declining, the scope of IR responsibilities continues to grow. IR professionals are left struggling to not only maximize their own time, but also make more efficient use of management’s time, in terms of meeting with the highest quality prospects. In fact, targeting new investors is a top priority for IR teams everywhere, with 75% putting it among their top three objectives last year.
3. Changing Landscape
Since the introduction of MiFID II in early 2018, IR teams globally have felt the strain. For many, there’s been a cutback in research coverage, along with less corporate access assistance from the sell-side. This is a major concern for small caps in particular, with a considerable 43% claiming a need for increasing research coverage. As a result, IR teams have to take on additional responsibilities that come from managing both the outbound aspects of organizing an NDR (from targeting to outreach and logistics), as well as the rise of corporate access and the increasingly direct inbound interest from the buy-side.
Also in recent years, the trend for environmental, social and governance (ESG) investments has been booming. According to a report on “Sustainable Financing and ESG Investing” by HSBC Holdings, two-thirds of institutional investors and nearly 50% of companies globally have an ESG policy in place. ESG is impacting a corporate’s perceived value, and in turn, an investor’s ROI. In addition, environmentally and socially conscious consumers are voicing their opinions, as HNWs and large groups of retail investors, voting on governance matters at AGMs. As such, corporates are striving to help drive share price, by positioning their story for ESG (and of course, showcasing these initiatives on their IR site).
4. Rise of Passive Investing
We’re continuing to witness the rise in passive investing, index funds and ETFS. According to Matthew Tractenberg, IR Partner at Q4, “eight firms hold 40% of the outstanding shares of most companies. If that trend continues, the three largest index firms will own 20% of every company within ten years. That’s an astounding figure.” Based on current trends, passive funds are growing as a total universe and will ultimately surpass active funds. Corporates will have to engage passive funds through governance channels, to drive shareholder value and prevent activist situations.
These four challenges are not particularly surprising for IR professionals. We’ve all seen them coming. The question is: what can you do to overcome these roadblocks and elevate your IR activities? Stay tuned for our next blog that will explore how to tackle these hurdles and future-proof your IR program.
Allyce Maclaren is Q4’s Marketing Specialist and enjoys writing about trends in IR and marketing.