The capital markets are constantly evolving and 2019 is poised to be a year of major change. In this article we look at how these changes are impacting the marketplace participants with a focus on the Investor Relations programs of public companies. Changes in regulations, investor focus, structural shifts, and investor decision making processes are all contributing to a market environment that is as dynamic as ever. Now more than ever, companies require an Investor Relations program that is built for the modern era.
At StreetReader, we are always speaking with our IR customers and tracking trends in the capital markets and investment management industries. We see five trends that are sure to keep Investor Relations professionals quite busy in 2019.
Activism Will Play A Bigger Role
Activists are launching more campaigns, deploying more capital, and winning more board seats. We are also seeing traditional asset managers taking more active roles and speaking out publicly leading to more activist-like engagement with companies.
The WSJ recently highlighted how Neuberger Berman went public over 130 times in the past two years with their demands on how management can improve the company. AllianceBernstein recently wrote a white paper explaining how active managers should take a more activist approach to their investments, “In our view, active equity managers are best positioned to stimulate change, to promote corporate improvements—and to increase the power of activist investing in the future.”
In 2018, Activists targeted a record 284 companies and have secured a record number of board seats.
As activism grows, the need to manage an increasingly vocal activist investor base introduces new workflows and new challenges.
Future IPO Activity Looks Robust
There are many large IPOs lining up for a 2019 debut. Although the government shutdown is impacting the pipeline in January, when the SEC gets back to work, they will be quite busy.
Uber, Pinterest, Lyft, Slack, Airbnb, Palantir, and Postmates are amongst the largest of the companies that are all putting together the pieces to be a public company, including new Investor Relations programs. Their competitors will need to track these IPOs closely since they will impact the comparable valuations and will drive news flow throughout the year as investors start focusing on these new investment opportunities.
MiFID II Is Shifting The Workload
Mifid II is changing how sell-side analysts operate as intermediaries in the capital markets. For decades, analysts have sent their research to a wide range of institutional investors in exchange for future commission payments. That practice has been stopped in Europe and is slowing in other geographies since MiFID II is mandating direct payments for research. Portfolio managers and analysts are having fewer conversations with fewer analysts and many have reduced access to research sources. Brokers are also sponsoring fewer conferences in most sectors, especially those run by non-bulge bracket banks.
This means that IR teams now have to spend more time getting their message to investors via direct channels.
Alternative Data Is Gaining Mass Adoption
There are over 400 alternative data providers with diverse data sets that institutional investors are using in their investment processes. In a recent survey by Greenwich Research Associates, 50% of asset managers stated that they plan to increase their usage of alternative data in 2019. These datasets include data on credit card sales, web scraping, web traffic, email scraping, social sentiment, satellite data, and many others.
The rise of alt data creates a need for IR teams to understand what investors are looking at. The major market data vendors only include a small subset of these data sets so it will be up to IR teams to come up with creative solutions on how to obtain this insight from the investment community.
The Focus On ESG Factors Is Increasing
ESG continues to gain prominence as an important investment theme. Many dedicated ESG funds, and all of the major passive asset managers are looking for more transparency in numerous ESG and corporate governance metrics. These metrics include factors such as compensation, shareholder rights, environmental risks, carbon, climate and natural resource impact, human rights, product safety, and many more. This work is often handled by IR teams who now collate and report on these metrics in addition to the traditional financial metrics.
While ESG has been a popular form of investing in Europe for many years, the importance of ESG factors for U.S. investment managers has accelerated dramatically in recent years. According to the US SIF Foundation, institutional investors using ESG factors in their investment process increased 44% from $8.1 trillion in 2016 to $11.6 trillion in 2018.
Companies with debt in their capital structure will also need to focus on ESG factors as part of their credit ratings. S&P Global Ratings has already incorporated ESG into its credit ratings, and Fitch’s research indicates that 22% of its current corporate ratings are influenced by ESG-related factors.
With all these changes, the one thing that is more certain than ever is that public companies must invest in their Investor Relations programs to keep up. It is the job of the IR team to be the resident experts on the capital markets within their company and educate all the senior leaders to ensure the company is managed to maximize the value from all stakeholder perspectives.