Capital Markets & Investor Relations

IR Monitor – 15th March 2021

Investor Relations News

This week we begin with the Broome Yasar and Goldman Sachs collaboration event on the new regulatory framework for pensions. We go on to explore the role of high-profile investors (and questionable corporate governance) in the growing SPAC market. Following on from that, we discuss the effects of Reddit investing groups and how they can drive trading volume, share price movement and ownership changes. We then turn to the question of whether increased attention to cancel culture and moral business pursuits can be seen as securities fraud. Moving on, we discuss the effects of MiFID II on research, three years since the directive was passed, and then finally we look at the rise of corporate America’s new favourite acronym, ESG.

This week’s news

ESG led reform: the new regulatory framework for pensions

Broome Yasar, in collaboration with Goldman Sachs, invited Minister for Pensions, Guy Opperman, to discuss the government’s new bill which now regulates pension funds and how they invest in companies. The ESG movement has grown immensely across the globe with the UK emerging as the first G7 country to legislate for net-zero by 2050 and the bill has placed significant importance on climate change in regards to pension saving. Opperman emphasised that climate change and investing in the long term are symbiotic and, despite the government driving change, it will be energy companies that are able to deliver future renewable technology. The panel concluded that the new changes will force asset managers to undergo growth and innovation. Companies should be encouraged to drive forward continued change in regards to ESG.

Billionaire investor Chris Sacca says he’s been invited to sit on SPAC boards and do nothing 

Following the recent surge in the number of SPACs, Business Insider has reported that several high-profile celebrities have jumped on the bandwagon. In a series of tweets, billionaire investor, Chris Sacca stated that he had been “offered a bunch of SPAC board seats”. The former “Shark Tank” star has shown concerns over the rapid rise of special-purpose acquisition companies and described a significant number of board members as “just window dressing”. Sacca’s apprehension towards SPACs is a view shared by other high-profile investors. Last month, Charlie Munger described SPACS as “crazy speculation” and evidence of an “irritating bubble”. The disdain towards SPACs is not a recent revelation; the GMO co-founder, Jeremy Grantham, described them as a “license to rip investors off”, after unintentionally benefitting from one of his investments being acquired by a SPAC in 2020. Despite benefitting from the acquisition, Grantham suggested that SPACs should be banned.

Reddit chatter can drive trading volume, share price movement and ownership changes 

The powerful effect of Reddit chatter was evident for all after the massive spikes at GameStop, AMC Entertainment, Rocket Company and others. IR Magazine has analysed how Reddit investment groups can contribute to changes in trading volume, share price and ownership. A trend within these investing groups is for users to publish due diligence (DD) posts, which provide in-depth reports on a company’s financials and recent announcements. Similar to traditional analyst reports, the posts can then provide a buy/sell recommendation and receive thousands of upvotes and comments. Moving forward, IR teams are going to have to be well-aware of the ‘Reddit effect’. After the GameStop saga, the popularity of these Reddit Investing groups has increased dramatically, which could result in these groups having a greater impact in the future.

Is cancel culture securities fraud?

In a recently published paper entitled “Cancel Culture, Breach of Fiduciary Responsibility & Shareholder Lawsuits”, Robert McGee has discussed the result of cancel culture on corporate profits, arguing that management who engage in cancel culture could face shareholder lawsuits for breach of fiduciary duty. He contends that “Publicly held corporations have a fiduciary duty to their shareholders to engage in activities that increase profits, and not to engage in activities that decrease profits… Refusing to do business with individuals or organizations that would increase their profits is a prima facie case of breach of fiduciary duty.” Here, Bloomberg’s Matt Levine responds that on this basis “everything is securities fraud”, because anything a public company does can be recharacterized in this way.

The equity research brain drain 

Once upon a time, being a Wall Street research analyst was the crowning achievement of a career, but now it might be a stepping stone to somewhere else. According to Institutional Investor, in the three years since the EU enacted MiFID II, European and U.S. banks and brokers have lost 7,500 years of aggregate experience, as highlighted in a study soon to be published by Substantive Research, a research analytics and benchmark provider. The firm has been tracking the number and seniority of analysts, as well as their moves around the industry, as tenure is one factor asset managers use to determine research quality. By region, European brokers have cut their analyst teams at least three times more than their U.S. peers which can be seen in the fall-out: in Europe, the ranks of analysts have been cut by 12 percent compared to a 4 percent cut in the U.S.

And finally … Corporate America’s favourite acronym 

According to the New York Times, Corporate America’s newest favourite acronym, ESG, was cited by a quarter of S&P 500 companies in their fourth-quarter— nearly double the count in the same period a year before. Short for environmental, social and governance issues, ESG reflects the broader concerns of boardrooms, beyond shareholder returns, and is likely a result of investors like BlackRock pushing companies to adopt targets on their climate impact, commitment to racial equity and other issues.

Conferences

16-17 March: European Consumer Ingredients Conference – Exane BNP Paribas

16-18 March: Energy Conference 2021 – UBS

16-18 March: Pan-European Small/Mid Cap CEO Conference – J.P.Morgan

17-18 March: DACH & Nordic Conference – Berenberg

Contact Us

To be added to the distribution list for the IR Monitor, or for further information on the dedicated investor relations team at FTI, please contact [email protected].

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