International meeting of minds: Highlights from the IR Magazine Global Forum 2019
from the IR Magazine Global Forum & Awards 2019
IROs debate research, targeting, ESG and the impact of AI during two-day event in Paris
What links Mifid II, Greta Thunberg and Jeff Bezos? They are all, in their own way, shaping the future of the IR profession.
Mifid II is driving changes in equity research and investor targeting. Thunberg fronts the global fight against climate change, which increasingly is an issue companies must address. And Bezos is helping everyone, including investors, make the most of new technology, such as artificial intelligence (AI).
These topics all came under scrutiny at the IR Magazine Global Forum & Awards 2019, which took place in Paris on October 2-3. The annual event attracted more than 180 attendees from a total of 31 different countries.
Over the two days, the agenda tackled three central themes – research and targeting, ESG disclosure and engagement, and the impact of technology on IR – with multiple sessions on each.
Mifid II: It’s not all bad news
One of the interesting findings to come out of the conference is that some IROs are actually enjoying the effects of Mifid II. Since its implementation in January 2018, the far-reaching European legislation has led to complaints that it makes investors harder to access.
The new rules have meant investors having to pay for equity research and corporate access out of their own funds, leading them to cut back on the sell-side services they use. As a result, fewer investors are attending conferences or broker-led roadshows.
Karen Bodner, head of global IR advisory in the depositary receipts division of BNY Mellon, commented that the changing economics of the corporate access industry are creating new opportunities for IR.
‘It used to be that brokers would be the ones driving, saying that I need to have management,’ she said. ‘Well if they are getting paid $10,000 a meeting to bring the CEO but not the IRO, obviously they are demanding to bring the CEO on the road. But that’s just not the case anymore, right? So it’s more democratizing for investor relations.’
ESG on the rise – but not for stock picking
You’d need to be living in an abandoned coal mine to avoid the global debate around climate change. Indeed, global warming is one of the main issues driving more and more investors to integrate some form of ESG criteria into their investment decision-making.
The amount of assets classed as sustainable now stands at more than $30 tn, having climbed a third since 2016, according to research from the Global Sustainable Investment Alliance. At the conference, Bodner explained how investors are incorporating ESG into their processes – and it’s not being used to pick stocks, at least for now.
‘Risk management is really why they were using this data,’ Bodner explained. ‘They are using it to understand your companies and understand the risks. And that’s of course why governance matters. Because governance is really about risk management. Can you target ESG investors? The answer is no – sorry. Passive, negative, exclusionary screening is the biggest way [investors] are using this information.’
AI and alternative data: Everything is being watched
The use of AI and alternative data – meaning information that is not traditionally used in the investment process – has been on the rise among investors for some years. But recently the trend has accelerated thanks to lowering costs and a proliferation of new tools.
A survey by TABB Group at the end of last year found that 83 percent of buy-side respondents are at least in the planning/research phase of investing in AI technology. A separate study, conducted for IHS Markit by Greenwich Associates, found that 74 percent of investors think alternative data is beginning to have a significant impact on institutional investing.
But when we say AI, what exactly are we talking about? There are a lot of misconceptions about what AI really is, explained panelist Daniel Nye, chief investment officer at Swiftsure Partners.
‘Probably a better way to approach it is to call it augmented intelligence,’ he explained. ‘Fundamentally, AI isn’t sentient, so it’s not what you see in the movies. Basically it’s pattern recognition… It’s simply very good at looking for patterns and then ascribing a probability of an outcome to those patterns.
‘That said, the tools have become much less expensive and much more widely used. To give you an indication of where they are used almost every day, when your CEOs and CFOs conduct their quarterly conference calls and release their quarterly filings, that’s being listened to.’
He suggested companies investigate what words or changes in cadence could trigger a sell signal during a presentation or Q&A.
And it’s not just investors looking at this information. The SEC is using AI to screen whistleblower complaints and review corporate filings for fraud, said Nye.