The newly implemented MiFID II regulation, aimed at improving fairness and transparency in financial markets, may bring about important changes in the way many publicly traded companies in the United States introduce themselves to desirable investors.
In a post-MiFID II environment, it is imperative that management teams of public healthcare companies take a proactive approach to shareholder targeting and their corporate-access strategy.
Too often, management teams rely on the discretion of their sell-side partners to determine which investors get the limited one-on-one meetings at a non-deal road show or conference. Don’t get me wrong — the sell side does an effective job at raising a company’s profile and expanding its investor audience; but when it comes to access, the highest-commission-paying investors get the best meetings — and they may not necessarily be the best long-term shareholders.
Where does that leave publicly traded healthcare companies that are in search of high-quality, long-term investors? Management teams and IROs will need to take ownership of this very important element in their investor relations playbooks. Here are a few things management teams need to consider when it comes to corporate access.
Look Beyond the Comp Sheets
At the root of all shareholder-targeting exercises is running a search of comparable company’s shareholder lists. While this is a good start, it is important to read between the lines and weed out investors who do not care about the fundamentals like passive (index and ETF) and quantitative funds, as well as some trust companies that aggregate all of the shares held in their domain. This exercise will give you a good base of fundamental investors that could be potential shareholders given their interest in similar companies — but don’t stop there.
There are a number of good, sophisticated healthcare investors who will not show up on these lists, such as family offices, sovereign wealth funds, and large funds with very few limited partners that fall below the threshold for filing 13-Fs. These funds can be great long-term shareholders and, in a lot of cases, miss the sell side’s radar screen because their portfolio turnover is too low to generate sufficient commissions. These lower-key investors are worth a publicly traded company’s time and attention, however, as they are often long-term shareholders interested in strong fundamentals.
Look Beyond the Well-Trafficked Regions
As sell-side capacity gets rationalized in the MiFID II environment, the brokers who remain will be focused on the higher-commission-generating hedge fund investors in heavily investor-concentrated regions. As commissions get squeezed, less concentrated regions will increasingly become neglected by the sell side due to the diminishing economic value of servicing these territories.
Take the initiative and travel to these regions on your own to maintain your visibility there. The majority of investors in these regions are institutional managers or mutual funds that tend to take a long-term and long only approach to investing. They already fear the drastic reduction of sell-side-sponsored non-deal road shows in their regions that the MiFID II regulation portends.
Fill in the Gaps
Another effect of MiFID II regulation will be the reduction of investment managers’ broker relationships, as they scale down their external research budgets. As a result, sell-side-sponsored non-deal road shows, conferences, and group events will target a smaller, truncated audience. In some cases, large mutual fund companies are already creating internal corporate access teams that will bypass brokers altogether and deal directly with company management to set up meetings at their offices.
In these instances, management will have to take control of their own schedule and engage quality, long-term shareholders to fill in the gaps around directly booked meetings or supplement incomplete broker targets. Corporate leaders traveling to Baltimore to meet with T. Rowe Price, for instance, might fill in the rest of their schedules during the trip to meet with other quality investors — after arranging the appointments themselves.
Taking a more hands-on approach to developing relationships with valuable, oft-overlooked investors is a great strategy. This means looking beyond the well-trafficked regions, beyond the lists of comparable companies’ shareholders, and beyond the major funds that appear in the usual investor databases. Implementation of MiFID II early this year makes it an even more important practice for publicly traded companies.
Looking to take ownership of your investor outreach? Westwicke’s corporate access team is well-positioned to help healthcare companies navigate the new, post-MiFID II investor landscape and develop proactive corporate access solutions. Get in touch for a personalized approach.