Rethinking Investor Relations by Leveraging Data
Since the Markets in Financial Instruments Directive (MiFID II) was implemented in 2018, investor relations teams have found that they need to modify the ways in which they attract new shareholders. To enhance efficiency, IR groups are leveraging data and advisory services to make the most out of their interactions with prospective and existing shareholders.
During a webinar with IR Magazine, Matt Latino, senior director of investor relations at water technology company Xylem (NYSE: XYL), and Mike Stiller, co-head of Nasdaq Strategic Capital Intelligence, discussed the effects of MiFID II, such as fewer sell-side conferences and increased direct engagement with shareholders and buy-side analysts. At Xylem, Latino said his IR team last year experienced a 51% year-over-year increase in direct conversations with the buy side, which he called “pretty dramatic.”
Webinar participants confirmed that sentiment, with 60% reporting increased direct engagement between their companies and the buy side, compared to just 8% who saw a decrease. Nearly half of the participants (46%) said direct engagement between their company and investors has been primarily inbound, meaning investors are reaching out to the company’s IR team.
“A substantial amount of your day ends up going into talking through the story and going through the questions with investors that come much more directly now, rather than being buffered and fielded through some of the sell-side analysts,” Latino said. “For us, we’ve had to take a much more active approach in managing who we want meetings with and specifically targeting those firms.”
MiFID II, which implemented restrictions related to utilizing third-party brokers, is forcing companies to rethink investor outreach, said Stiller, who recently co-authored a whitepaper, “Data-Driven IR: Using Analytics to Drive IR Success.” IR teams need to think critically about who is on the other side of the table to successfully convert an investor into a shareholder.
The average U.S. company initiates 60 new investor relationships in a year, and around one in eight of these go on to become shareholders, according to the whitepaper. Top quartile companies are achieving conversion rates of about one in five, Stiller wrote.
Mega-cap companies spend about 45% of their time with new holders, large-cap companies devote 55% of their time, mid-cap companies dedicate 67% of their time and small-cap companies commit 77% of their time, Stiller said.
“Mega-caps have deep, existing shareholder bases,” noted Stiller. “On the other side of the spectrum, you’ve got small-caps that spend a lot of their time with non-holders and trying to develop an institutional shareholder base.”
With the amount of time spent with new and existing shareholders, it’s critical for IR teams to be responsive and get back to people quickly, said Latino. In order to keep up with the increased engagements with investors, Latino said his team is looking more toward leveraging technology, which can be provided by Nasdaq Strategic Capital Intelligence.
“When [shareholders] make the decision to go in to take a position, it will be in that very concentrated portfolio, and it will be for 10 to 15 years,” Latino said. “We know that because we really rely on the surveillance team that we have at Nasdaq, getting insights over investment angles and what they’ve heard from other clients.”
“Leveraging that team is really an extension of our own team so that we can get some insights before we have conversations,” Latino said.
Listen to the webinar here.
- Read: Changes in Investor Engagement: From Third-Party to In-House
- Read: Advisory Intelligence: Falling Large-Cap Company Conference Attendance
- Read: 4 Ways to Increase Investor Conversion
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