MiFID II: How the Corporate Access
Landscape Is Changing
Landscape Is Changing
Our goal is to consistently enhance the WeConvene platform so that it continues to help Investor Relations teams work in a fundamentally more efficient way. As part of this process we are constantly meeting with IRO’s in an attempt to get a better understanding of how they see the corporate access landscape changing and the challenges they are facing.
In a typical month we will have in excess of 50 meetings with IR teams across Europe, North America and Australia which gives us a good insight into what is weighing on the mind of IRO’s in different regions. For this blog post, we have thought back to the conversations we have had over the past month in order to find (and share) the issues that IRO’s are consistently highlighting.
It should come as no surprise to anyone that MiFID II remains the number one discussion point for every IR team, irrespective of market cap or region and is the topic that has filled nearly all our meetings. One thing that became very clear though, was the distinct change in tone between our conversations over the last month, compared to those we were having 6 months ago. IR teams are now no longer questioning whether they will be impacted by MiFID II and their mindset has moved to an acceptance that, change is an absolute given. The only questions now are - How large will the operational impact will be? What kind of strain will this place on existing resources? and What do they need to do to prepare?
On these two questions, the sense we got from our meetings is that the type of predictions for the future seemed to very much depend on the size of the corporate.
- Large caps tended to be sanguine about the potential impact to them. In the majority of cases they have already spoken to their brokers and are confident that existing service levels will on the whole remain the same. Although they believe there will be a shakeout in the sell side and costs will be cut, the consensus is that the impact on them will be minimal.
- At least one European large cap did note though that brokers have already started to limit the locations where they are taking them, with a view that certain locations will not be commercially viable next year.
- Small caps are almost universally nervous about the future. It is this group that is the most open to hearing different viewpoints on the likely impact of MiFID II and also appear to have the strongest awareness that they are going to need to be more proactive in looking at ways to improve their outreach.
- There are though still a number of small caps that we have met with, particularly in the US who are unaware of the potential for loss of analyst coverage and how they might need to improve their independent outreach. Ironically, many of these teams were also the ones that highlighted how dependent they were on the sell side due to a lack of internal resources and the large impact that the loss of even a couple of analysts from their coverage would have.
- Mid caps from what we see can be split into two groups.
- The first group is worried about losing further analyst coverage so are actually making their management teams more available for broker run events in an effort to strengthen their relationships and ensure that coverage will not be dropped.
- The second group sees the changing landscape as an opportunity to operate more independently and take control of their own outreach. They expressed disappointment in their brokers continually falling to get them meetings with their target investors and were actually excited about the prospect of getting to new investors.
In terms of what is driving these viewpoints, it is almost universally coming from the active conversations that IR teams are having with their investors. A number of IR teams in Europe reported that they have received letters from a handful of their largest shareholders informing them that they will now be organizing corporate access meetings direct with the corporate and recommending that the IR team researches systems to help facilitate this process. The asset managers outside of the main financial centres, where things are easier to manage and there is less demand are categorically stating that they will not be paying brokers for corporate access and in the words of one IRO “they simply don’t understand why we even need a broker”. Without exception, every IR teams said they expect direct inquiries from asset managers to increase and in a number of cases, they have already seen a marked increase in the past 2-3 months.
Alongside this, many IR teams are starting to think about whether they have the required resources to handle this increase in direct requests and how to best manage considering there is little chance of budget increases to help adapt to the increasing demands they will be under. As one IRO at a European Mid-Cap commented “Our budget has been cut every 6 months over the last few years because management can’t put a quantitative value on the work we do in IR and now I am going to have to take on a lot of additional work that we used to outsource to the Sell Side. It is not a great time to be an IRO at a smaller company”.
With respect to regional differences, we were surprised at the general consistency in views between Europe, the US and Australia.
- Considering that MiFID II is a European set of regulations, it was no surprise that overall, the European IR teams have given the issue the greatest consideration and are furthest along in assessing what they need to do to prepare.
- That said, US IR teams are certainly much more aware of MiFID II now than they were during conversations we were having as recently as 3 months ago when the most common response to a question on their MiFID II preparations was, “What is MiFID II?”.
- The vast majority of US IR teams are of the viewpoint that, although the MiFID II regulations emanate from Europe, they will definitely be impacted and it is highly likely that the regulations will be adopted as best practice for US asset managers, irrespective of whether they are legally required to comply.
- Australia was a big surprise to us, as despite the distance from Europe, IR teams there were on the whole extremely well informed about MiFID II and the likely impact. There was a strong belief that the impact will be global and in most cases they have already started to think about the necessary changes to how they operate.
Key Takeaway from the month:
The move towards investors going direct to corporates to set up meetings has started already and based on the feedback IR teams are receiving from their shareholders, looks like it will increase exponentially.
Most commonly highlighted challenge:
Vetting incoming buy side requests is time consuming as do not want to give people time with management if they're only fact finding or taking a high level look at the industry.
Comment that surprised us:
“We like to keep a low profile and limit outreach as our existing shareholders appreciate the exclusivity of the relationship we have.” European Mid Cap
Interesting viewpoint we hadn’t considered:
“MiFID II is definitely a positive as hopefully will mean some analysts will drop their coverage of us and I won’t have to dedicate so much time and effort to making the tail of our coverage happy.” US Large Cap
WeConvene is a platform for the capital markets community focused on making the creation, distribution, marketing and execution of meetings between Analysts, Corporates, Investors, IR firms, Expert Networks and Investment Banks - efficient, easy and economically viable. To learn more, visit us at www.weconvene.com or request a demo.