IR Monitor – 5th July 2021
Investor Relations News
We begin by looking at changing trends in the market for IR professionals. Next, we cover comments from the former head of the world’s largest pension fund that he sees signs of a “bubble” in ESG investing. We then look at the rules in the US around activist stake disclosures, and whether they are still fit for purpose. Closer to home, we examine criticism from an M&G fund manager that UK boards are selling their businesses to private equity too cheaply. Following this, we turn to the issue of small cap equity research and what Investec has been doing to help boost coverage. And finally, we discuss recent findings from a paper in the National Association of Scholars which found that even finance professors at US business schools tend towards left-wing politics.
This week’s news
IR – The Bellwether
Fidelio has reported an uptake in demand for IR professionals. The executive search firm notes that this is partly driven from economies re-opening across the world, which has sparked a wave of new IPOs, particularly of special purpose acquisition companies that require further IR expertise to attract investors. In this respect, IR is an economic bellwether. The article also notes that there is added demand for IR Directors with expertise in tricky areas such as investor activism and ESG, which are increasingly creating headaches for those firms that have been slower at grasping the changing moods of the market. Finally, Fidelio points out that gender and ethnicity diversity have become increasingly important criteria in the selection of IR professionals, in line with firms setting tighter diversity and inclusion targets.
Beware the “ESG bubble”
Eiji Hirano, the former chairman of Japan’s Government Pension Investment Fund (GPIF), has said in an interview that he sees signs of an “ESG bubble right now”. Mr Hirano urged the GPIF to go “back to its roots” and to think about how to analyse if ESG is even profitable, as well as to look at ways to evaluate and standardise the more ‘sustainable’ asset class. Mr Hirano’s comments have been picked up in The Japan Times, which noted that the GPIF was previously a world leader in ESG investments during Mr Hirano’s time as chairman. Indeed, under former Chief Investment Officer Hiromichi Mizuno and former President Norihiro Takahashi, the GPIF committed to “change the world”. However, the GPIF has gone relatively quiet on the topic of ESG investing under its new management. Mr Hirano went on to discuss a variety of other topics during his interview, including whether the fund will need to reconsider the weighting of domestic stocks in its next portfolio review, the role of alternative assets and the choice it faces around investing in Chinese sovereign debt.
Activist disclosure: 10 day window should be reduced
The Financial Times’ Lex column has argued that the US Securities and Exchange Commission (SEC) should reduce the 10-day window given to investment funds to disclose active stakes in a company that are larger than 5%. New SEC chair Gary Gensler has recently said that the regulator would look into current requirements and whether they need updating. This stems from the idea that the 10-day rule, first established in 1968, has become anachronistic and does not serve the needs of contemporary, fast-paced markets. The author notes that a shorter disclosure window would be preferable for companies, who could then deploy better defensive measures to force “predator” funds to pay a premium for control. Lex concludes that, even if the SEC shrunk the allowed timing to one day, this would still leave funds with strategic manoeuvring options through the use of non-share purchases, which use swaps and options to create equity-like exposure without the need for reporting.
City fund manager slams boards for selling firms on the cheap
Rory Alexander, a UK equities fund manager at M&G, has warned British boards against selling their companies to buyout firms on the cheap. He told the Daily Mail that there is an “unsettling trend of boards entertaining private equity offers at levels well below the true value of their businesses.” Mr Alexander’s comments follow fresh on the heels of a new offer from Clayton Dubilier & Rice (CDR) for healthcare company UDG, of which M&G is the seventh largest shareholder. The most recent offer is worth 1080p a share, or £2.8bn, an increase upon CDR’s earlier bid of 1023p a share, which had been backed by the UDG board. Shareholders including M&G rejected this earlier bid and, despite UDG’s largest shareholder Allianz moving to support the improved offer, M&G has continued to stand firm. Alexander told the paper that M&G will persist in rejecting “bids which are not in the best interests of our customers.”
“You can’t cover this part of the market in the traditional way”
IR Magazine has written about Investec’s plan to boost buy-side research into small cap companies that are being increasingly overlooked by analysts. The Anglo-South African investment bank has launched a new offering that covers 50 stocks with a modest average market cap of £250 million. Unlike traditional equity research, Investec’s new small cap product will not provide buy or sell ratings. Rather, it will apply management strategy frameworks such as Porter’s Five Forces to identify stocks that are well positioned for growth. The article also notes how the European Union has been looking into ways to solve the issue of dwindling research numbers, caused in part by the requirement set in Mifid II for brokers to decouple the costs of research and trading. Earlier this year, the decoupling requirement was reversed for companies with a market cap below €1 billion, with the UK’s Financial Conduct Authority proposing soon after to ease research payment rules for firms below £200 million.
And finally … Even Finance Professors Lean Left
Does the obsession with the ESG agenda begin at business school? It has become an assumed truism among many that US academia is now a political monoculture, dominated by left-wing politics. One might expect, though, that if there were to be a field of study most likely to offer ‘safe harbour’ for conservatives, it would be finance professors at business schools. Not so, according to Even Finance Professors Lean Left, a newly published article in the National Association of Scholars – and discussed on economist John Cochrane’s blog. The paper’s author has tracked down the party affiliation of finance professors at the top 20 US departments, assessing them against a ‘Democrat to Republican Ratio’. The top two finance departments in the US, New York University and Harvard University, both scored an astonishing 10:1 ratio. Even the University of Chicago, home of the famous ‘Chicago School of Economics’, has a political affiliation ratio of 9 Democrats to 1 Republican. The only department to score parity of 1:1 was UCLA, the country’s 9th best finance department. Emre Kuvvet, the paper’s author, thinks that his findings reveal a disturbing left-wing “groupthink” at the top of the profession, with younger faculty members even more left-leaning than older peers.
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