A brief extract from Q4’s Managing Director of Europe, Amit Sanghvi on the upcoming key drifts in IR for this year
IROs and MiFID II: It’s been just over a year since MiFID II took effect, we may say there’s no turning back. We’ve all felt the decline of the sell-side globally, along with the increasing loss of research coverage and increase in direct investor engagement.
Over the last year, the relationship between corporates and brokers has come under some serious scrutiny. Whether its their ability to draw crowds at an event or bring key institutional investors to roadshows, the sell-side has had a challenging year. Historically, skeptics have always raised concerns around a broker’s partiality towards their sales desk clients. But now many IROs feel frustrated at the lack of clarity around which institutions can be accessed via their broker, versus those they should directly contact themselves. Many corporates have also seen a real drop in conference attendance arranged by brokers.
It is predicted an overwhelming trend for corporates, of all shapes and sizes, to directly and proactively shoulder a large number of investor relationships. Several have already started to experiment, by taking the corporate access model in-house and organising ‘IR only’ roadshows put together and managed by the IR team alone, maybe with the help of IR external agencies.
The so called Holy Trinity: ESG, Passive Investing, and Corporate Access: ESG (Environmental, Social and Governance) and the rise of passive funds are undeniable trends that are profoundly changing the capital markets. ESG has become a key focus in the IRO’s mandate, especially for mid and large-cap companies.
Today’s consumers are highly aware of their overall footprint and making environmentally and socially conscious decisions. They’re more conscious than ever before about contributing to the success of a brand that meets their growing expectations. In this way, ESG is directly impacting a corporate’s perceived value, and in turn, an investor’s ROI. In addition, these same consumers are making their opinions known, as HNWs and large groups of retail investors, flexing their votes on governance matters at AGMs.
We’ll also continue to witness the rise in passive investing, index funds and ETFS. Passive funds will keep growing as a total universe (and ultimately surpass active funds based on current trends). And corporates will have to engage these passive funds through governance channels, to drive shareholder value and prevent activist situations.
While the IR market is still learning about the potential value of alternative data, Sanghvi says that “leveraging sophisticated algorithms and alternative data sets is ready to become a formidable part of investor targeting. It’s already fundamental to the way many investors look for investment opportunities.” He underlines the importance of IROs catching-up with the buy-side who have been using alternative data for years.
IROs will also have to become even more “creative” about communicating to the right investors and driving fair share price value.
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