‘Yo’ to the feisty executive who, when visiting Philadelphia, jogs along the Benjamin Franklin Parkway (America’s Champs-Elysee) and up the 99 steps of the Museum of Art – a corporate Rocky hopeful of victory. Certainly IROs have good reason to be pumped. Philadelphia is the fifth largest investing center in the US, holding $234 bn in equities according to Technimetrics. It’s home to giants like the Vanguard Group and PNC Bank’s equities management (see BlackRock fund management profile page), making it a crucial roadshow stop.
Just be sure to change attire before shadow-boxing on to your first meeting. Like its founder, Quaker William Penn, Philadelphia is known for being conservative. A veteran of 30 years on the sell-side, money manager Marvin Roffman of Roffman Miller Associates recalls the hapless Californian CEO who doffed his tie in front of a shocked group of investors. ‘Unbelievable,’ Roffman scoffs. ‘We’re still old-fashioned, with a lot of very provincial thinking in Philadelphia.’
Like Rocky, Roffman is a famous Philadelphia underdog. In 1990 he held on past the final bell with a ‘sell’ on Donald Trump’s Taj Mahal bonds, and got fired for his opinion by the region’s old-line brokerage, Janney Montgomery Scott – a landmark case which drew attention to the conflict between sell-side and investment banking interests. Roffman sparred his way back with assets under management now exceeding critical mass of around $100 mn. ‘I like what I do now because I really can’t get fired for telling the truth,’ he remarks.
Steady Eddies
The conservative theme is pervasive. ‘They’re a group of steady Eddies,’ comments James Chiafery, IR director at Kulicke & Soffa and president of the city’s Niri chapter. ‘There’s no-one in the region who stands out as a hotshot portfolio manager.’
‘On the sell-side, it’s a notoriously conservative environment,’ remarks David Evanson of Financial Communications Associates, a local IR consultant specializing in small cap companies. ‘At one point there were a lot of old-line brokerage firms, and they have left their indelible mark.’
Evanson recalls his erstwhile stint as a broker, going against the Phily flow with low-priced stock: ‘It was tough; the culture is not conducive to it.’ As further evidence of conservatism, he points to the Philadelphia Securities Association’s vibrant but grey-haired membership – average age over 50, many retired. Evanson adds that the region’s buy-side runs the gamut of styles these days.
By now consolidation in financial services has pared down the Philadelphia-based sell-side to leave Penn Mutual Life’s Janney as the region’s only powerhouse, and the firm’s director of research, James Meyer, as the city’s sell-side ambassador.
‘The definition of Philadelphia style has been homogenized over the last ten years,’ says Meyer. ‘At one point you could have argued that it was low PE, value-oriented investing. But there has been the emergence of a fairly active group of momentum investors like Pilgrim Baxter. Now the city is marked by the two extremes: one concentrates on the bottom decile of PEs, trying to sift value out of the so-called dogs of the market; the other looks for strong earnings momentum as the driving influence.’
‘People still call Philadelphia a value town, but we have a broad spectrum now,’ agrees Susanne Weaver, executive director of the Financial Analysts of Philadelphia, pointing to the city’s prolific output of smaller money managers which co-exist alongside flagship names like Delaware Investment Advisors. ‘There are a lot of these with their own styles.’
Venture hotbed
Philip Webster, whose Conshohocken-based Webster Group specializes in working for overseas companies, points to ‘hundreds of asset managers in Philadelphia and the suburbs.’ He adds: ‘It’s also a venture capital hotbed for the country.’ No wonder: Philadelphia has more universities than anywhere but Boston, and a high volume of entrepreneurs have their genesis in the Wharton School.
Still, investors like Roffman remain quintessentially Philadelphian. ‘Unlike many people who use the stock market almost as a gambling arena, we are investors,’ he says. ‘We never invest in anything unless we personally go out and visit the company and meet the management. We’re looking for companies that share our philosophy of long-term investing, that are not just trying to please Wall Street with short-term performance. We really are long-term investors, not market timers.’
Roffman evidently puts a premium on IR: he is on the Financial Analysts’ program committee; he runs the American Stock Exchange ‘corporate focus group’, showcasing Amex companies for Philadelphia investors; and he stages periodic ‘education exposures’ for the financial community. ‘The most important ingredient of a public company is ‘sponsorship’. If you don’t have that, you could sell at a big discount instead of a market multiple,’ he explains. ‘What creates sponsorship is executives communicating with the investment community – letting people know what’s going on, getting out there and telling the story. And not just telling the story only when times are good.’
When it comes to dealing with Philadelphia’s prominent momentum players – Pilgrim Baxter and the less infamous Friess Associates – Evanson counsels diversification. ‘If you have a lot of institutions in your stock, the presence of momentum players is hurtful because all your shareholders tend to move in one direction,’ he says. ‘But you can sometimes blunt their effect if you have a large retail base.’
Close at hand
Despite its investing clout, Philadelphia is all too often overlooked by roadtripping companies even though it’s just two hours by car from Manhattan. This may be due to an uncommon lack of investor conferences. Janney is almost unique among regional US brokerages for eschewing an annual conference, with Lancaster County’s Emerald Asset Management filling the gap with its quirky groundhog day conference for local companies in early February.
‘It’s easy to think of Philadelphia as a second-tier market; it’s easy to overlook,’ says Chiafery. ‘Most folks think of the east coast as New York and Boston, but it’s well worth tacking on another morning or an afternoon to take a look at the funds in Philadelphia. You see faces you wouldn’t normally see.’
Along with its value/momentum split, Philadelphia has a geographical schism. Some managers – like Glenmede Trust, Wilmington Trust and Delaware Investment Advisors – clustered downtown; others – Vanguard, Pilgrim Baxter, Brandywine – are scattered through the western suburbs and over the state line into Delaware. Any road trip should take in the whole Delaware Valley from Phila delphia to Wilmington, Delaware some 20 miles south west. ‘People say there is more gold under the streets of Wilmington than anywhere but Zurich,’ says Webster. ‘It’s become a powerful financial capital.’
Spanning the valley are the Financial Analysts, with weekly ‘center city lunches’ complemented by ‘suburban breakfasts’ for outlying members. Last year they merged with the Wilmington society and now boast some 1,100 members. For many companies, the more buy-side oriented Financial Analysts or the more sell-side Philadelphia Securities Association (unrelated to but often confused with the Analysts) are perfect windows onto a varied, ready-made investing audience. Unfortunately, the Financial Analysts have scaled back company presentations even while expanding their program to fixed-income investing.
‘Along with every society in the country, we have experienced a decline in attendance at company presentations,’ says Weaver, attributing the phenomenon to all the readily available information on companies. ‘Companies are doing quarterly conference calls, so investors have access to management even if it’s not face-to-face.’ Still, she remains committed to the value of face-to-face meetings. ‘Personally I think it’s very exciting, and especially interesting not just to have financial people come to speak to us, but to hear a real operating guy.’ In September, the Analysts are trying a new format: three companies will present over a whole morning, with a Wall Street analyst wrapping up over lunch.
Meanwhile, the 400 member strong, 70 year-old Philadelphia Securities Association is perhaps the most common route – besides one-on-ones – to the investment community’s heart. Under current president William Suplee of the Philadelphia Corporation for Investment Services, it invites companies to host twice-weekly analyst lunches at the Union League club.
Back at Janney, don’t expect to be welcomed too warmly by its 18 analysts unless you have a strong Philadelphia connection. ‘We try to concentrate on companies in our backyard,’ says Meyer, ‘and hope that because we’re paying more attention to those companies than others, we’ll be able to see things earlier and anticipate better. Hopefully we get to understand Pep Boys better while national firms probably understand Sears or Wal-Mart better than us.’
You also have to match up with one of the analysts to get Janney’s attention. ‘I don’t care who the automotive company is, I don’t have an auto analyst,’ says Meyer. ‘And I’m not interested in a Southwestern chain of anything, no matter how good it is. There has to be some other special feature – you know people here, have a banking possibility, or have a direct competitor here. For instance, if AutoZone came to town, the fact that we follow Pep Boys would make it worth a visit.’
Apart from that, Meyer seeks companies with trades records – not start-ups or ‘concepts’. ‘You buy stocks offensively as opposed to defensively – because you want them to go up. Stocks go up for the most part because earnings go up, so I’m focused on companies that have the ability to do better than their group and to achieve better than average and hopefully better than expected earnings.’
With its regional bent, Janney’s coverage partly reflects the region’s business profile. For example, there are many chemical and speciality chemical businesses in the Delaware Valley and an important concentration in regional banking. Meanwhile, a lot of high-tech companies have grown up in Philadelphia’s Route 202 corridor.
After working up an appetite up and down the Delaware Valley, not to mention Rocky’s famous steps, make sure to take advantage of Philadelphia’s famous restaurants. Here you’ll find Le Bec-Fin, sometimes judged the best in the US. Or City Tavern, a re-creation of the watering hole patronized by the likes of Thomas Jefferson as he carved out the US Constitution. Who knows what kind of deals IROs might come out with.
