Mifid reforms spur companies seeking investors to bypass brokers
Companies are bypassing their banks and brokers to arrange meetings and calls directly with
potential investors, in response to new European rules that aim to make markets more transparent
and reduce conflicts of interest.
Mifid II, the sprawling EU markets regulation that came into effect this year, requires banks and
brokers to charge fund managers separately for analyst research as well as for “corporate access”,
such as face-to-face meetings with company management.
But some fund managers are reluctant to pay for access and many are also cautious of
inadvertently breaking the new rules. For this reason, several companies are exploring ways to
communicate with investors without banks or brokers as middlemen — using their internal
investor relations teams instead to arrange meetings and organize roadshows.
Russian supermarket chain Magnit is one example of a company organizing its own investor
roadshows in London. “By us hosting, you satisfy the requirements of Mifid II and you avoid a
situation where a portfolio manager has to decline an invitation that he or she otherwise would like
to accept … but they don’t have a paying relationship with your broker,” said Timothy Post, head of
investor relations.
David Shriver, communications director at online UK retail company Ocado, said companies
needed to adapt. “It’s a fascinating time,” he said. “If you still rely heavily on intermediaries then
you need to be able to engage differently. If you are familiar with this process of disintermediation
then you should be OK.”
A survey of about 300 financial institutions by the UK’s Investor Relations Society and QuantiFire,
an investor relations service provider found that more than half planned to use brokers less for
corporate access and said they would be more reliant on companies instead.
The change is expected to harm the profitability of small City brokers in particular, which are more
sensitive to any loss of business than deep-pocketed and more diversified banks.
But bank-organized investor conferences have also been affected, according to insiders. Prices are
still in flux but some banks are quoting large fees for non-clients who want to attend these
conferences — sometimes $500 a person or more — according to several fund managers.
US investment bank KBW charged non-clients —
asset managers who do not buy its research — $500 a
head to attend its European financials conference this
month.
Many asset managers are unwilling to pay to attend conferences and there are reports of a few
being turned away at the door. Meanwhile, some brokers have had to cancel events after struggling
to attract enough investors, while others can no longer justify hosting more glitzy affairs.
“Everyone is seeing conferences that are smaller,” the head of research at one big bank told the
Financial Times.
“The era of spa retreats and fancy hotels for conferences seems to have come to an end … We
expect that locations will get less impressive,” the consultancy PwC said in a report this year.
In response, companies have been devising workarounds with investors. In some cases, asset
managers who have not attended conferences in an official capacity have turned up to meet
company representatives without brokers. There have even been examples of companies adding
days to investor roadshows in order to meet local investors directly.
Many predict that this disintermediation of banks and brokers will be a boon for the investor
relations profession.
“UK corporate brokers have been a comfort blanket for companies that you do not get anywhere
else in the world,” said Fraser Thorne, chief executive of Edison, an investment research company.
“In North America, every company has a director of investor relations and the UK is going to have
to adapt to that.”
David Lloyd-Seed, chair of the Investor Relations Society and director of investor relations at
telecoms group O2, said: “It’s up to investor relations staff to … persuade executives to invest in IR
in order to promote the company.”
Among the other big winners from the market shake-up have been providers of technology that
bring together investors and companies.
Adrian Rusling, the partner at Phoenix Investor Relations, based in Brussels, said there had been a 50
percent rise in the number of daily interactions between investors and companies on his online
service since the introduction of Mifid II.
These sorts of services are considered important for smaller companies that may struggle to spread
information about themselves more widely.
“As a highly liquid large-cap [firm], we can get attention,” said Magnit’s Mr Post. “[But] some at
mid-size and small-size firms don’t have the luxury. That’s where independent platforms are
helping out.”
Some large European stock exchanges — such as Euronext — have said they are considering
partnerships with third parties to help smaller companies build relationships with investors.
Mr Shriver of Ocado agreed that technology would play a growing role in facilitating relationships
between investors and companies.
“We are four months into Mifid II and it will probably take a full calendar year before we see the
full effects — but so far it is obvious that the old model has been compromised.”