21 June 2017

BLOG: TIME SPENT IN RECONNAISSANCE IS NEVER WASTED

By Scott Fulton | 21 June 2017

Equity capital markets are based on communication; from corporate issuers to investors and back again. To date, in the UK, generating market intelligence has been dominated by brokers and banks. However, we sense that fund managers are increasingly fed up with the steady stream of feedback requests. They may be becoming more selective in what information they provide and to whom.

This selectivity is likely to increase as MiFID II implementation approaches. It asks that fund managers place a “value” on their use of services such as corporate access and investment research. It is not a particular stretch to imagine that they will also place a “value” on the provision of their input to surveys. As a result, feedback may become more difficult to generate at a time when companies need it most as they prepare for the potential changes in 2018

We recommend that companies ask their core shareholders how they are planning to receive research and take meetings. At a minimum, investor relations departments will need to know to which analyst’s research a shareholder will subscribe and whether these shareholders have a relationship in place with brokers to organise road shows. There is no agreement as to whether corporate broking fees satisfy MiFID II which focuses on what the funds pay brokers rather than what the companies pay.

Recently, Capital Access Group has been meeting with CIOs and compliance officers at a number of fund management houses, a process which continues. We now believe that fund managers are prepared to discuss their plans for MiFID II with their core shareholdings. Specifically, they appear keen to share plans for which research they will use and with which providers they will organise meetings. It is unlikely that they will provide this feedback to brokers.

We acknowledge that, for companies, it is tempting to adopt a “wait and see” approach to MiFID II. There seems to be little consensus on how this will operate in practice and many to whom we have spoken suggest that it will take time to bed in.

However, there is little doubt that change will take place and we believe that it is important for companies to be certain of how their message gets to shareholders and, critically, what their shareholders think of it.