Changing Environment for Company-Institutional Investor Meetings Part I of Two-part Article on Road Shows

Introduction by Hank Boerner
Among the many changes taking place in the capital markets, and presenting greater challenges for the IR officer, are those involving face-to-face meetings with current or potential institutional investors. Do we still maintain a tight focus on the sell-side? How do we better penetrate the buy-side investment community? Do investor labels have meaning any more – value, momentum, GARP, large-cap investors…how do we know they really are what the label says?

Over the past year IR Update has presented a running series on some of the most critical tasks for NIRI members: The dialogue with institutional investors; in-person, via digital platforms, at group meetings, on the road; and on the road in the European Union if your company is seeking investors (or already has owners on board) from beyond the seas.

These concerns are shared at the CFO level: Recently CFO magazine editors commented such topics as “on the analyst circuit,” and meeting with “the right investors.” Getting the most out of road shows, analyst and investor meetings, conferences and the like “requires more than getting invited and just showing up,” notes CFO’s Lori Calabro. “One-on-ones and conferences trump analyst research in value,” claims CFO’s Alix Stuart, who notes that despite the predictions that Reg FD would curtail discussions, “face time apparently hasn’t lost its value.”

There are probably as many opinions on analyst and investor meetings these days as we find around the swirling debate on earnings guidance – or not – or quarterly vs. annual if issues do project future earnings.

In this two-part article we look at a new approach to investor meetings – the payment by the institution for inviting in companies of their choice…and how this is being done at the regional and national level. We begin with “Off the Beaten Path” – a look at sometimes overlooked regional markets for company visits from partners of a firm specializing in coordinating regional meetings…on roads less traveled. Next month we will look at new approaches in setting up national meetings.

Off the Beaten Path: Reaching Investors through the Regional Roadshow

BY John Schoger and Dianne Iannarino

Whether you are looking to increase your shareholder base or want to build stronger relationships with some of your top shareholders located outside of the largest money centers, you should give careful consideration to the opportunities you have to meet with investors in regional money centers. (These include Atlanta, Charlotte, Dallas, Des Moines, Detroit, Kansas City, Milwaukee/Madison, Ohio’s “Three C’s,”and Pittsburgh).

Often overlooked, these regions have large pockets of actively-managed domestic and international equity assets from diversified sources, including state and corporate pension funds, super-regional and regional banks, mutual funds, insurance companies, and a range of independent investment managers -- all eager to meet with IROs and senior corporate management.

Expect More in the Regions

In these regional markets there is often more money under management than you may expect. In the Ohio and Western Pennsylvania region that we serve, there is over $200 billion in internally managed equity assets, including five institutions which [each] manage more than $30B in equity assets. Fifteen more institutions [each] manage equity assets of at least $2B, many with concentrated holdings, enabling them to take meaningful positions in small- and mid-cap companies, in addition to their large-cap holdings.

Value for Institution to Meet Directly With Company Management

Now more than ever before, regional institutions have a greater need to meet with corporate management. The recent reduction in [their] budgets has significantly reduced the investors’ ability to visit directly with corporations or attend distant conferences. At the same time, the Street has been more selective in analyst coverage, eliminating many analyst positions and reducing their travel budgets as well. The effects of these changes are more acute within the regional investor community.

Typically, we are seeing that portfolio managers rarely travel. Since the analysts and portfolio managers work as teams in making investment decisions, your company’s presence in the regional market can be value-added to their internal research efforts. As a result, their investment teams often have a greater appreciation for your time and commitment -- and for the opportunity to sit across the table from you in their own boardrooms.

Note Personality Differences

In contrast to the faster pace of money investors and activist hedge funds we commonly find in the big money centers -- in New York, Boston, Chicago and San Francisco -- regional investors are often more conservative and consider themselves “owners of a company,” not simply “renters” of a stock. In general, the majority of institutional investors that you will meet in a region like ours have mid-term to long-term investment strategies, low-to- medium portfolio turnover rates and tend not to drive their trading decisions on momentum or quarterly earnings, but instead focus on corporate and sector fundamentals.

Your Audience – What to Expect in the Regional Markets

Regional markets do not see corporate management and Street analysts as frequently as the larger money center analysts or portfolio managers [do], and consequently, corporate visits are a precious commodity to them. These investment teams understand the time constraints placed on company management and welcome the opportunity to meet with an IRO or with C-level management. These investors want to hear about your strategy, initiatives, management focus, financial structure, new products, and growth prospects.

Expect regional institutional portfolio managers and analysts to be knowledgeable about your company, industry and competition, allowing the meetings to be conversational. The IRO and managers will have ample opportunity to tell their company’s story. The regional investors are qualified professionals, mostly CFAs who are diligent in their questions and well-versed in the financial markets and their specific industry coverage. The meeting intensity can vary widely but many times the meetings begin with an overview of recent significant events and strategic initiates that leads to more in-depth discussion and Q&A.

Regional Differences

Although every regional market is distinct and has its own nuances, they can be the “hidden jewels” for your company, found outside the traditional mega money centers. Over the past seven years, we have obtained in-depth knowledge and relationships in our Ohio and Pittsburgh markets to assist companies in their efforts in expanding boundaries to additional investment markets. These regional road shows can bring another dimension to your corporate dissemination of financial information.

As Mark Steinkrauss, VP-Corporate Relations, Telephone & Data Systems notes: “I think it is important to seek out these regional investors. Not only do they appreciate the effort and face time, but they also tend to be well-prepared and serious about evaluating your company. For a Midwestern company (TDS), it’s good to know there are committed investors with billions under management just next door.”

As we have seen from hosting over 200 companies -- domestic and international, large-cap to small-cap, growth to value -- most IROs have been pleasantly surprised by the quality of the meetings, the smooth schedule, efficient timing, how well their company’s style was matched to the appropriate institutional audience. And, they are pleased to find how friendly everyone is in regional capital markets when you get off the beaten path.