IR Monitor – 24 January 2024

In this week’s newsletter:

In this week’s newsletter:

• FTI’s Dublin team have written a paper on Responsible AI Governance which includes a chapter on investor expectations; interest is still in its early stages but growing
• UK’s persistently undervalued stock market irresistible to global activists, warns the FT
• Who are the Gen Z IROs and what do they want? asks IR Magazine. Why younger generations want to work in IR and how veterans can help them succeed
• Why ‘shareholder democracy’ remains out of reach for European retail investors
• Wall Street is praying firms will start going public again (and so are IROs). In 2021, at least one new firm went public every working day, according to The Economist
• And finally … the S.G. exodus intensifies. In a sign of the times, the phrase has even been scrubbed from the World Economic Forum’s official programme this year

This week’s news

FTI’s new paper on Responsible AI Governance is a must read…

FTI Dublin’s Governance and ESG team has just published a Whitepaper on Responsible AI Governance, indicating that investors are starting to encourage companies to develop responsible AI governance frameworks. Our colleagues advocate a proactive approach, drawing parallels with ESG guidelines. They provide practical advice to business leaders, looking to develop a robust framework taking into account AI’s opportunities, risks, regulatory environment and investor practices. The report presents Norges Bank Investment Management (with $1.4 trillion AUM) and the Collective Impact Coalition for Digital Inclusion ($6.9 trillion AUM) as case studies for best practice AI governance frameworks. These investor groups have set expectations for portfolio companies, focused on accountability, transparency, explainability, ethical use and robust risk management.

UK’s persistently undervalued stock market irresistible to global activists

For the seventh year in a row, the UK has been crowned the global capital of shareholder activism, according to research cited by the Financial Times. The FT points out structural factors that make London a hotbed of activism. Compared to Europe, London has more listed companies, with broader shareholder bases, but the faltering equity market also plays a role as UK stocks currently trade at a one-third valuation gap to global stocks. Our team supports clients preparing for (and, ideally, avoiding) activist situations. Should you wish to discuss further, please contact Alex Le May, UK Head of M&A and Activism via [email protected]. 

Who are the Gen Z IROs?

A recent survey in IR Magazine found that only 10% of IR professionals are under 30, but that might be changing as more members of the “Gen Z” are aspiring to join the IR community. Some transitioned to their roles from other industry stints, while others chose the path upon graduation.  “The role itself is at a different speed, in terms of the expectations around how fast we react within the investment community, how quickly we need to get communication to our internal and external partners”, noted Simone Soldi, trainee IRO at the European Stability Mechanism. However, the complexity of the role remains a key hurdle as it generally requires high numerical and linguistic skills. Whilst this explains why some companies are unwilling to consider candidates in their early-twenties, industry veteran Jane MacCahon has encouraged senior peers to be more proactive and welcome fresh faces to the profession, through mentorship for instance.

Why ‘shareholder democracy’ remains out of reach for some

Ignites Europe has reported on the question of “pass-through” voting, which would enable retail investors to directly influence voting at AGMs, noting that Blackrock has delayed its plans to launch a pilot programme in the UK. However, US retail investors in BlackRock’s biggest ETF will this year be able to choose from a list of policies directing how fund shares are voted. Whilst competitors ramp up their own retail voting choice programmes, Ignites considers why the UK and Europe have not seen the same uptick in pass-through voting. The complexity of the proxy voting ecosystem, the diversity of shareholders, and strict EU data protection laws have made implementation difficult. In addition, the investment culture in the US is more “mainstream” according to Morningstar’s Lindsey Stewart, and there has been political and regulatory pressure to adopt a more democratic system in recent years. There are signs, however, that Europe might be beginning to follow suit, with the UK’s Sustainable Disclosure Requirements and the EU’s Corporate Sustainability Reporting Directive testament to an increasing interest in transparency and stewardship. 

Wall Street is praying firms will start going public again (and so are IROs)

America’s top investment banks are cautiously optimistic that two barren years for capital markets may be coming to an end as markets return to near all-time highs. America’s largest investment banks have seen a dramatic fall in earnings in the last few years, as dealmaking and IPO activity stagnated following record transaction activity in 2021. Yet it looks as if narrow credit spreads, high real interest rates, and a resilient American economy have created the conditions for an uptick, if not yet a full rebound, for markets. Aggregate Investment banking revenues climbed by 15% in Q4 compared to the first three quarters of 2023, and Wall Street is awash with rumours of a whole host of firms – from Kim Kardashian’s Skims to payment giant Stripe – considering a market debut in 2024. However, capital markets are nothing if not unpredictable, and research from the University of North Carolina has determined that America’s IPO market remains in its longest “cold” spell since 1980. Whilst “green shoots may eventually poke through the ice”, The Economist warns Wall Street to temper its justifiable optimism for now. 

And finally … the E.S.G. exodus intensifies. 

In a sign of the times, the acronym has even been scrubbed from the World Economic Forum’s official programme this year. DealBook reports that money exiting ESG funds has gone “from a trickle to a torrent”, with investors pulling $5 billion out of “sustainable” investment funds last quarter despite a wider market rally. In total, ESG funds saw outflows of $13 billion in 2023, as even longtime champions like Blackrock have gone quiet on the issue amidst mounting greenwashing concerns and rising political pressure. Whilst the market is still worth trillions, it’s certainly off its 2021 peak. Political concerns from Republicans in the House of Representatives are perhaps having the most significant effect, as they begin to increase scrutiny of fund giants and their investment strategies in the name of defending retail investors. 

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