Investor targeting is at the heart of any successful IR program. According to IR Magazine’s Objectives and Challenges Report, 75% of the 600 IROs surveyed ranked targeting as one of their top three goals. But targeting has its challenges, to say the least. Taking a deeper look at today’s macro-environment, here are three main issues affecting the current landscape:
Pushing the limits on IR budgets and time
Many IROs think of investor targeting as an endless investor roadshow, traveling across the globe to meet with every asset manager possible. However, while roadshows are valuable, they are incredibly time and budget-consuming. Financially, the cost of travel, accommodations, venues, meals and distribution materials can quickly add up in the thousands. And the burden of planning the roadshow and organizing the logistics can take days, if not weeks, to finalize. This can be quite a barrier for IR teams that are already stretched thin. In fact, according to IR Magazine’s IR Function report, the average North American IR budget in 2017 was $50,000 down from the year before, and the average IR team size has now dropped to just 2.2 professionals, which is the smallest number of any region across all cap sizes.
MiFID II’s impact on connecting with the buy-side
It’s never been a walk in the park for small and mid-caps to gain access to investors, but since the introduction of MiFID II, companies are now struggling with the reality of disappearing from the field of vision of major institutional investors altogether. Under the new legislation, investment research payments must be separated from dealing commissions, forcing brokers to price research and charge for their services independently. And it has become clear that institutional investors are less willing to pay for research and corporate access for less capitalized securities.
As a result, IR teams are either paying for the services of brokers and research houses to reach investors or taking on the extra work in-house. While paying for external help is putting a strain on already tight IR budgets, the alternative of moving the research in-house is pushing IR teams to their bandwidth limits.
Understanding the nuances of today’s changing investor
The evolving nature of today’s investor is making the process of simply matching, for example, a growth stock with a growth investor, harder to achieve. How investors are classified on traditional databases — and how they actually behave — are not always aligned. And they may also lean towards strategies that are difficult to screen. This includes favorable themes (ie. the “Internet of Things,” 5G, etc.), exceptional management teams (ie. having an IBM pedigree), unique strategies or concentrated market share (ie. companies like Netflix), or strategic “styles” (ie. being highly acquisitive). This is difficult to filter, and requires a more thoughtful eye. According to Mike Coffey, VP, Solutions Engineering at Q4, “Understanding your investor is critical to framing your conversation. It’s key to do your research and understand why an institution would want to own your stock. You need to know what type of investors they are, their goals, and the main drivers of their portfolio.”
For more food for thought on placing the “right” institutional investors in front of the right management (at the right time) download our ultimate guide to targeting best practices.
Allyce Maclaren is Q4’s Marketing Specialist and enjoys writing about trends in IR and marketing.