Investor Relations– How do new dealing commissions influence roadshows?
Investor meetings 2.0
Investor relations are tightly aligned to regulatory changes and new standards. So when it comes to one of IR’s most relevant tools, the direct contact with institutional investors at roadshows and in one-on-one meetings, European regulators put companies, brokers and investors with MiFID II under increasing scrutiny (further information: www.fca.org.uk/markets/mifid-ii). That was more than a good reason to gather insights and opinions from all parties involved. As you can see from the statements, MiFID II has the potential to be a game changer when it comes to company-investor engagement. Non-broker roadshows will gain importance in the near future and IROs – especially of small- and mid-cap companies – have to intensify their shareholder targeting and visibility at the same time to get in direct contact with institutional investors they wish to meet. At the same time, it poses the opportunity to address more specifically investors the company aims for rather than established contacts by their brokers. On a strategic as well as operational level IR gains importance – but of course, resources are needed for these additional tasks. We fear that smaller companies will face disadvantages if the implications of MiFID II are not considered.
* Barbara Zäch is Managing Director of the IR Club Switzerland, Dr. Kristin Köhler is CEO of the Center for Corporate Reporting (CCR)
About IR Club Switzerland
The IR club Switzerland is the network for investor relations professionals in Switzerland, a forum for exchanging ideas, tackling key IR issues and developing best practices. The IR club Switzerland also aims to establish and promote contacts between club members and investors, asset managers and financial analysts both in Switzerland and abroad. It represents the interests of all listed companies.
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Michel Gerber Head of Investor Relations VAT Group & President IR Club
Which influences do you see to your roadshow work re the upcoming commissions’ regulation?
It is still early days, however, it is obvious that especially for smaller-cap companies it will become more and more difficult to find brokers willing to cover your stock and on top of it to also show you around with investors in the regions impacted by the new regulation. I could imagine a situation where corporates have to pay (more) to see investors.
What are your key learnings from former roadshows?
Investor Relations, obviously, is about building a relationship. So if you have been with the same company or in the profession in general for a longer time, you really build a connection with many people in the financial community and, as a result, the discussions in the meetings become less a spreadsheet-focused interrogation by the investor but rather an open dialogue based on mutual respect and trust.
Urs Beck CFA, Senior Fund Manager EFG Asset Management
How does the upcoming commissions’ regulation change your approach to companies you wish to meet?
In my investment process, management meetings are a very important part of our stock picking. Obviously, MiFID hasn’t been carved in stone yet. The vast majority of 1–1 meetings so far were in financial roadshows. I expect companies to continue seeing investors after figure releases. The organization through a sell-side broker is a very efficient way for all involved parties. Should this become obsolete, I’d expect both sides – firms and investors – to move to a more pro-active approach to arrange meetings. Third-party online tools might play a role, however hard to see a business model, if the buy side is not allowed to allocate commission for such meetings. A second source have been sell-side-organized conferences. This could still be a business model for brokers – moving from soft to hard dollars – charging a fix fee for the conference.
Peter Romanzina, Head of Brokerage, Vontobel
How does the upcoming commissions’ regulation change your roadshow activities?
We currently do not see a change in our roadshow activity from the introduction of MiFID II. In the UK the FCA already specifically forbids investors to pay for corporate access. This in fact might lead to a certain de-emphasizing of UK roadshows and a change in the incentive structure in the future; still, it is difficult to assess the exact impact at this point in time already.
Is it as easy to get a roadshow from a company you have a sell recommendation as a buy?
It depends! Some companies chose us for our access to investors, our seamless and end-to-end process and/or the quality of our research. Some others (seem to) have an internal policy to only travel with brokers who have at least a “hold” rating.
Stefan Frischknecht CFA, Fund Manager Schroder Investment Management
How does the upcoming commissions’ regulation impact / change your relationship with brokers?
Generally speaking we are “MiFID II-ready”, as we already run a research budget, which is fixed at the beginning of the year. In theory, our relationship with brokers should remain the same, but in practise, some brokers have not yet thought about the imminent changes, and they might contact us and ask for a change in the way we pay for research. We expect that it will become increasingly difficult for smaller players to cover their costs only by research commissions and we expect that larger players will take a greater share of execution commissions. This might lead to structural changes in the brokerage industry. In Switzerland, we have already seen a presumed first victim: Bank am Bellevue has announced in February 2017 to cease its brokerage and corporate finance activity.
An IR head of a SMI company…
… measures the success of a roadshow:
– interest in meetings
– questions and knowledge of people met
– who we met
– follow-up questions or meetings
– share price performance during roadshow
– investments done after roadshow
…sees the following changes for roadshows re the upcoming commissions’ regulation:
– more administrative work and logistics by the company
– potentially less meetings as a consequence of the upcoming commissions’ regulation