Investor relations has never faced such a challenging future. High-quality investor relations is now more important than ever before. The devastation wrought by the pandemic has seen a record number of companies raising new capital. Despite the £17 bn ($22 bn) injected by UK public markets to strengthen balance sheets, ensure growth and potentially buy weaker rivals, most players strongly suspect this represents the tip of a very deep capital requirements iceberg.
As Fidelity has already acknowledged, the large institutions won’t be able to fund the global recapitalization requirements by themselves. More pools of capital have to be found from somewhere. Yet just as it’s needed most, IR’s ability to assist seems to be limited and shrinking.
Passive investment funds now have greater assets under management than their active competitors. Share buybacks and, ahead of Covid-19 at least, a slower rate of IPOs are leading to de-equitization. And the rise of private equity has shifted even more money away from the public markets. At the same time, regulation has left investment research in reduced demand and short supply.
In summary, the investors the IR industry can influence are fewer in number and more remote from the equities they represent. Much of which, of course, is a consequence of the low-yield environment. And given the ongoing quantitative easing associated with the economic catastrophe that is the pandemic, there are no reasons to believe the fundamental direction of economic or investment trends are going to change.
Where does this leave many listed companies? Often feeling exposed. And what about IR functions? Often feeling embattled as the hills to climb look ever-steeper in the face of the recapitalization requirements after Covid-19.
So how should the industry respond? We must innovate and find ways to respond effectively. Not only is it time for a revolutionary shakeup of the industry, it is entirely possible.
The long tail of demand
Firstly, we need to take a leaf out of Amazon’s book. It services the long tail of demand for each product category it stocks. Now investor relations has to build as deep a reach into the long tail pools of capital that are out there. Introductions to the usual large institutions are not enough. Family offices. Private wealth managers. Retail investors. These pools of capital matter.
Next up, we need to tackle the technology issue. Everything must be contactless and digital now. The type of IR that relied on face-to-face meetings, lunches and early evening drinks is mostly history. If it doesn’t happen on a connected platform in 2020, it just doesn’t happen.
Consider, for instance, Primary Bid, which provides a platform that works directly with the London Stock Exchange and makes it far easier for retail investors to take part in public company capital raisings.
It illustrates how the process of finding, informing and introducing investors to clients via digital means is now a necessity. In fact, it needs to be a single process to create the most value and best possible efficiency. This, outside the retail space, means starting with effective distribution of original and insightful equity research, listening for the signals of investment intent and then arranging the Zoom calls to introduce everyone.
Access to overseas capital
Of particular importance to solving the need for recapitalization will be access to US capital. It remains by far the largest market for stocks and shares in the world and although the total US equity market has doubled since 2008, holdings of foreign equities have nearly trebled over the same period.
Despite this rising interest in foreign equities, reaching US investors is not straightforward. The sheer size of the marketplace makes it difficult to approach, an issue exacerbated by its very long and fragmented tail. It is home to thousands of wealth managers, family offices and other smaller investment houses spread across the country.
However, the good news is that if these elements are put together, the IR industry can have an effective response. In the past three months, Edison Group has seen a significant increase in consumption of our research and assisted with hundreds of virtual roadshows and investor meetings. Our content has reached 187 countries worldwide. Equity stories are being heard in places they would not reach otherwise.
In the dangerous economic environment we now face, anything that can help restore the balance and assist recovery has to be something we should all support. For that reason, we wish the rest of the IR industry every success in meeting the challenges that the post-Covid-19 landscape is imposing.
Fraser Thorne is the CEO and founder of The Edison Group
