IR Monitor – 19 June 2024

In this week’s newsletter:

• UK IR Society’s Annual Conference – your FTI correspondent Maxime Lopes attended
• Apple Intelligence shows the direction of travel for AI use in Investor Relations
• Regulators should stamp out ‘opportunistic’ exits from LSE, says top broker
• Thinking about an Abu Dhabi roadshow? Two London hedge fund giants are said to be exploring outposts in the UAE; it would bolster AD’s status as an emerging financial hub
• Fund groups have ‘ceded too much control’ to proxy advisers: the chief executive of St James’s Place has said asset managers need to “take back ownership” of voting decisions
• And finally Annual Reports: same is good, change is bad. Morgan Stanley finds that if they change a lot it’s a sign that things are probably going wrong

This week’s news

UK IR Society’s Annual Conference 

Your FTI correspondent, Maxime Lopes, attended the UK IR Society’s Annual Conference in London last week. The agenda included many topics but the future of London as an equity capital market was a recurring focus across most conversations. Despite the doom and gloom in recent market commentary, the recent listing of Raspberry Pi was a source of optimism for panellists and audience participants who showed confidence in London’s ability to defend its role as a key international money centre. Plenary and break-out sessions also covered long-term structural trends in the IR industry, from the future of sell side research in the UK and Europe (with a contribution from Rachel Kent herself) to the role of AI as a driver of day-to-day efficiencies for IR teams, through to the evolving role played by stewardship teams on the buy side. IROs were also reminded of a few key principles on what makes a successful IR function: approach investors like customers and be responsive, be proactive in seeking feedback, keep messaging and disclosures consistent and try and establish direct relationships as much as you can. A simple, yet useful reminder.

The direction of travel for AI use in IR

With IR conference season underway, companies will be eager to showcase their IR credentials and the latest tools they have at their disposal. At Apple’s Worldwide Developers Conference (WWDC), the integration of AI into several of the Company’s existing services was announced, including search, text editing & image generation. These new capabilities will enable a range of tasks to be streamlined: AI can alter the tone of emails, summarise lengthy documents & improve search efficiency, managing large quantities of information simply and reliably. For IR professionals, this is perhaps a sign of things to come: AI will not be immediately revolutionary nor dramatic, but rather drive subtle and pragmatic changes which increasingly make a difference to the day-to-day tasks carried out by IR teams.

Stamping out ‘opportunistic’ exits from the London Stock Exchange

City regulators are being urged to tighten regulations around firms exiting the LSE, with warnings of the dangers posed to shareholders by opportunistic de-listings. Tim Cockroft, Chair and founder of investment bank Singer Capital Markets, highlighted in City AM the need for stronger regulation, following a spate of de-listings from London’s AIM this year. Several issuers are said to write “the same PR paper”, blaming high costs, tight regulation and low liquidity in a bid to escape shareholder dissent – in other words, taking “the easier option”. With stock crashes often following voluntary listing cancellations, questions over fairness and transparency for investors persist & some voices blame the lack of underlying performance. Cockroft’s intervention comes as concerns linger regarding the health of London’s capital markets. The number of AIM-listed companies has dropped from 1,104 in 2015 to 742 today, and both main political parties have pledged reform to deliver a much-needed boost to the LSE. 

Two London hedge fund giants said to be exploring outposts in Abu Dhabi

Marshall Wace and Capula, two of London’s leading hedge funds, are the latest asset managers to explore the possibility of opening offices in Abu Dhabi according to Bloomberg, as the city continues to emerge as a leading financial hub. Whilst several industry magnates & high-net worth individuals (including Ray Dalio, Radovan Vitek, and Nassef Sawiris) have recently set up operations in the city, Brevan Howard has also made the emirate its biggest trading hub, confirming asset managers’ interest in Abu Dhabi’s sovereign wealth funds which together hold an estimated $1.5 trillion. With tax-free income, reliably favourable weather & a time zone which facilitates cross-market trading, it looks as if Abu Dhabi is set to continue thriving. 

Fund groups have ‘ceded too much control’ to proxy advisers – SJP

In Financial News, Mark FitzPatrick, CEO of St James’s Place, called on asset managers to reclaim voting decisions from proxy advisers, blaming their outsized influence on shareholder meetings. Speaking at the Investment Association’s conference, FitzPatrick emphasised that reclaiming control is crucial for the UK market’s competitiveness. Echoing similar sentiments, JPMorgan CEO Jamie Dimon and AstraZeneca chair Michel Demaré criticised proxy firms for their inconsistent recommendations and negative impact on UK businesses. “Proxies often make inconsistent voting recommendations between markets: advising shareholders to vote against pay policies at FTSE-listed companies but supporting US and Swiss businesses that typically have higher compensation levels and a lower degree of performance-indexed pay,”, Demaré said. Meanwhile, proxy advisers like ISS defend their role, asserting they provide neutral and valuable guidance to clients while leaving final voting decisions to them.

And finally… Annual Reports: same is good, change is bad according to Morgan Stanley 

Annual reports – or “dental floss”, as the Financial Times calls them – hold crucial insights for investors, but seem to require too much work. Morgan Stanley’s research team recently used natural language processing (NLP) to analyse changes in the Risk Factors sections of annual and quarterly filings, over two decades. They found that significant changes in the language and structure of financial disclosures, relative to their prior-year report, often signal underlying issues and lead to underperformance. This fact aligns with earlier studies suggesting that companies rewriting their descriptions typically are more likely to suffer from future stock declines. Despite some limitations linked to crisis periods, such as the pandemic when volatility was higher, the article highlights the value of narrative consistency in financial disclosures, supporting a simple yet effective approach to identifying problem stocks. Ultimately, Morgan Stanley suggests that delegating the hard work to an algorithm may even be preferable. 

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