Some thoughts on the evolving roles of analysts and IROs
By Chris Plunkett
Remember when marketing was such a big part of investor relations? It still is – yet so much of the weight is now being carried by sell-side analysts. The concierge model, as some call it, has become an increasingly important part of analysts’ roles these days. They have to open doors for institutional investors to meet directly with senior management. This ultimately leads to trading revenue. Good research is not enough. This has always been the case, but there’s no denying that that the relevance of delivering corporate access has been elevated among research professionals.
In the past, IROs seemed to have much more responsibility for directly “setting up meetings,” as many used to describe it, with investors. They still do of course – and targeting the right investors has never been more important given the surge in short-term trading and shareholder activism. In fact, IROs have never had so many tools at their fingertips to analyze their company and peer shareholder bases and determine the best targets.
However, for a good number of IROs, a big part of marketing now includes spreading the cheer among covering analysts by giving each of them an opportunity to host non-deal roadshows (NDRs) in select markets. IROs are also better utilizing brokerage sponsored investment conferences to take advantage of one-on-one meeting opportunities. These meetings, which can be multiple all-day affairs, allow management teams to conveniently interact with investors from across the country.
This all makes sense – although the increased emphasis on marketing among analysts is somewhat ironic given that so many of them have gone on to become IROs. It’s sort of a role reversal. It wasn’t always quite this prominent.
I can remember years ago when I would try to get some of my smaller clients invited to various annual investment conferences. I would wait until a week or so before select conferences and ask the hosting analysts if any slots had opened. There usually were a few and my clients would happily fill them even if their slots were on the last day of the event. Being on the same bill with a group of sector leaders was always welcome regardless of placement in the schedule.
There was one instance where I really appreciated that the analyst helped me, as well as my clients. I also respected him for the influence he had amassed even though some had warned me that his ego had gotten out of whack. This ultimately became apparent to me as well. One year, I sent him a brief thank you note via email after the conference. His response was telling. He simply replied, “Don’t patronize me.”
Remember those days? It was often hard to tell some analysts from the bankers. Not only did analysts help in attracting trading revenue, they also aided their employers in landing various deals and stock offerings – and the fees that came with them. As a result, some analysts became rock stars – or at least they thought they were. The money was indeed flowing, along with their buy recommendations. This gave them considerable power. Then a number of things changed, namely in the form of new regulations. We all know what happened next.
Brains (and hard work) aside, most analysts were talented and good people then, as they are now. And, while there appears to be less self-promotion and a smaller number of so-called superstars today, the quality of research may actually have improved. It seems that more objective and insightful analysis has become more valuable as analysts compete for institutional dollars, rather than fees from corporations. Research has really become research – and corresponding investor marketing has become a paramount part of analysts’ roles.
This is all quite positive. The emphasis on marketing among analysts is opening doors for IROs to spend more time on other initiatives including developing strategic messaging, counseling management on investor expectations and earnings guidance, interacting with the board and engaging in a more active dialogue with the largest shareholders. At the same time, the entry of so many former analysts to the IR side has coincided with increased respect for the practice. The bar has been raised for our industry and IR is gaining greater recognition as a strategic imperative among the C-Suite and beyond. This benefits everyone involved in our profession.