After three decades in IR, including two years as the Chair of the IR Society, RD:IR’s Managing Director, Richard Davies, believes that though the IR industry has come far, there is still a long way to go.
- Technological change has driven faster, cheaper and more accurate data
- IROs are better qualified than ever
- Regulatory changes have had huge effects on the capital markets
- The sell-side is here to stay, despite what some people think
- Companies with dedicated IROs typically perform better
The best thing about working in the IR industry is the constant change, which provides both challenge and opportunity. This is matched by the continuity in the profession of the striving towards better practice. Looking back over the last 27 years of my time in the sector, I see much that has changed and much that has stayed the same. The most startling developments have, of course, been in the area of technology, with the impact of faster processing speeds in computing and the arrival of the internet. Many readers will find it difficult to imagine a time before digital and, indeed, I find it difficult to believe that we used to perform so much data entry and analysis manually in the late 80s. I started my IR career creating one of the first share register analysis systems, which was a spin-off of a hard copy publication I was hired to edit, The Index of Nominees & their Beneficial Owners. This directory of nominee companies and the funds they represented became a minor City classic, which I still get asked about, 15 years after its final edition was published. The early iterations were researched using fiches from Companies House, telephone calls to nominee companies and inspections of often hand-written or typed registers of beneficial owners, derived from interrogation under the old Companies Act Section 212 legislation (now known as s793). We went on to use this painstaking research (further augmented by fund-to-fund manager researched linkages) to analyse share registers, which arrived in hard copy format in piles of boxes, which we sifted and entered manually into computers the size of a desk. Analysis which now takes seconds, with electronic registers and sophisticated data processing, took days in some cases – and the fees reflected this.
The commoditisation and universalisation of data has certainly been a key change in the IR and financial services industry. Today’s IRO has easy access to information that would have been unimaginable 30 years ago. The challenge remains, however, in understanding how data should be used efficiently and strategically. It is a cliché in the industry to point out that IR is now taken more seriously by company boards but this is, of course, true. IR has become more professionalised in the UK, partly due to the impact of the IR Society. Gone are the days when fund managers and analysts would only speak to senior management, largely due to the rise in financial competence of the average IR officer (although I am not of the opinion that IROs necessarily have to be ex-analysts to have gravitas).
A major change, which historical significance in total, like the French Revolution according to Zhou Enlai, has yet to be fully understood, has been the forced unbundling of broker fees to fund managers for corporate access and research. I suspect that this is only the beginning of a deeper and wider disruption of financial services as market Darwinianism and internet technology scythe their way in months through centuries-old relationships in the City. There are so many other changes to the way that the capital markets operate that have impacted on the world of IR, all of which we now take for granted: internationalisation and consolidation of the asset management sector; the rise of hedge funds and proprietary trading; the impact of EU regulation (for example, MiFIDs 1 & 2); high-frequency trading and dark pools; the rise of Asia and other emerging markets as part of the globalisation process; the increase in interest in governance and the commensurate rise in importance of the proxy advisory agencies.
Big banks are here to stay
While so much has changed, so much has stayed the same. It is a rather wonderful aspect of the IR market that many of the market players of 27 years ago are still in place, whether as companies or IRO professionals. The young bucks of the 80s are now part of the IR establishment, albeit with greyer hair and expanded waistlines (including this writer). The arguments about companies needing to be pro-active about their equity marketing strategy are as true now as they were then, if not more so. People have decried the end of the sellside since I started work in the City. It hasn’t happened yet and will not happen for some years to come: there are too many vested interests. The major investment banks will be part of the scene for the foreseeable future and life for larger companies in terms of the services they receive therefrom will go on much as usual for the time being. Given the changes in the research and corporate access fee model that the recent FCA and forthcoming MiFID changes precipitate, my concern relates to the funding of small- and mid-cap public companies. Growth companies are the basis of a healthy public company market, where investors, retail and institutional, can invest in entities which are subject to market scrutiny, unlike the private equity market, where the only real oversight is provided by the auditor. Many of our current large-cap companies started life as small-caps but I wonder how many would achieve the same growth under today’s capital market conditions.
The role of the IRO
We have come very far in the IR industry in the UK but there is still a long way to go. Many UK public companies still do not see the need for a dedicated IR professional. Even those companies that do employ an IR officer may not take a pro-active approach to marketing their equity. The UK IR industry includes some of the world’s leading IR professionals, running sophisticated processes and strategies, utilising a mix of data and consultancy to take their company’s equity story to the global marketplace. On the other hand, there are companies that still do not consider IR to be important or which rely totally on a lacklustre broker with no interest in promoting their equity. The most exciting aspect of my last 27 years in the IR world is that I see that the former category is growing and the latter is shrinking. Research shows that companies which do not perform IR so well tend to disappear faster than those that do. In my experience, it was always thus and I am sure this will continue to be true. I wish the IR Society a very happy 35th birthday. I am delighted to have been part of its history. I look forward to the future of the Society and of the global IR market as we all embrace change and challenge.
Richard wrote this article as a contribution to the IR Society’s 35th anniversary celebratory edition of Informed Magazine. A copy of the magazine can be downloaded on the Society’s website here.