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Connecting with investors in a post MiFID II world

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We recently attended the 2018 Annual IR Society conference, where the great and the good come to wax lyrical about the importance of thoughtful and comprehensive investor communications programmes and breaking through the noise of the market.

One of this year’s most popular sessions debated the impacts of MiFID II on the major parties implicated. Reviewing our copious notes from the discussion we highlight 5 key takeaways.

1. For large companies, it’s business as usual

Big businesses are still well covered by bulge bracket banks because their shares command volume trades regardless of the regulatory environment. Large-cap companies have retained the most influential sell-side coverage and maintained close contact with their buy side following.

2. Conversely, mid to small cap stock are slowly seeing a shift

It is increasingly difficult for smaller stocks to both initiate and retain research coverage as sector coverage consolidates. Direct communication channels with investors are becoming more and more fragmented in the absence of the intermediary, and previously ancillary engagement vehicles such as investor conferences are quickly becoming prime touchpoints.

3. Asset managers are furthest along the curve

Many of the large asset managers have been proactive in preparing for MiFID II, creating in-house research teams and policies around what types of external research they will pay for in order to manage costs. The competitive for capital between passive and active managers has increased this focus on managing costs and small independent research houses are feeling the pinch as a result.

4. Sell-side struggles to maintain prominence

Research bundle pricing agreements are still in flux and investors are more reluctant to engage freely with analysts due to the formalising of cost structures. The past two years has seen an outflow of analyst talent from brokers into the buyside and IR teams, with some major investors already witnessing a deterioration in research quality, particularly on small-mid cap issuers. That said, some boutique brokers have seized the opportunity to forge new partnerships with the buyside, perhaps due to a more natural cultural fit with the ‘new normal’.

5. IR teams will need to grow or outsource to maintain visibility

It’s time for the IR profession to step forward, as with increasingly limited coverage, it is vital for the issuer to produce top quality collateral with best-in-class disclosure to ensure that its investment case lands successfully in the market on its own terms. Capacity constrained teams will need to outsource more of their services to specialists as banks reduce their services in areas where they have previously not charged fees, such as a targeting and corporate access.