Like a great migratory gaggle of Canada geese, foreign investor relations officers are flocking to Canada to court investors or conduct face-to-face meetings with these shareholders. Flocking may be a bit of an overstatement, the bird analogy too difficult to resist, but investor relations officers from both the US and Europe are paying closer attention to Canadian fund managers.
Assets of Canadian institutional investors have grown since the mid-1970s from a mere $5.3 bn invested in Canadian equities to well over $180 bn. The move from fixed-income investment to equities has been dramatic, and though Canadian tax-exempt and pension portfolios have a foreign investment cap of 20 percent, there is mounting pressure on the government to raise the ceiling to 30 percent.
International mandates
‘Canada as an international investor is starting to manage more money from within,’ says Wes Smith, VP of international equity at Scotia Cassels Investment Counsel, a $3 bn Toronto-based manager. ‘In the past, international mandates might have been given to money managers in New York, London or elsewhere. More and more there is better local expertise as technology improves.’
Smith, who heads the Scotia group overseeing European, Latin American and Pacific Rim investments, says he has seen a marked increase in the number of international companies traveling to Toronto for IR purposes.
Regardless of whether there has been a dramatic increase, Dick Wertheim believes there should be – especially US companies. ‘Even if they don’t have operations here it’s worthwhile because Canadians are constantly bombarded by US advertising,’ says Wertheim, founder of Toronto-based IR consultancy Wertheim & Co. Canadians are comfortable dealing with US companies, he adds; the accounting systems are similar, so Canadian analysts are comfortable reviewing US stocks.
Wertheim says there are several incentives driving Canadian investors to look outside the borders, as well as a number of reasons for foreign investor relations officers to consider Canada. Canadian fund managers, he explains, have been stung by the recent dismal returns of Canadian equities. In addition, he points out that there are relatively few large-cap stocks to choose from in Canada, and those that do exist tend to be resource-based.
‘There are very few industrial or high-tech companies. So if a fund here wants to diversify by sector, it is desirable for it to look in international equities, which is a compelling reason for companies to come here,’ explains Wertheim. ‘One thing that I think appeals to Canadian investors is the liquidity of US markets.’
Raised awareness
For those companies that are reassessing Canada and its buying power, Toronto is the primary destination. The city’s institutional investors manage over $130 bn in equity assets, and therefore command the lion’s share of attention. But Montreal is still a significant contender, with some $50 bn in equity assets and a handful of top money managers.
Jon Greer, IR director of Minnesota-based 3M, says that up until 1996 his company had never been to Toronto. Now, despite a minimal number of shareholders there, he considers it a worthwhile stop. ‘I think it is becoming more and more of a financial center. It’s still not in the league of San Francisco or Boston, but we thought it was meaningful and the people had good questions and seemed interested. I think our management felt it was worthwhile to go.’
John Barker of Wendy’s International, a company which has a local presence through its chain of Tim Horton’s restaurants, says he’s seen Canadian interest in Wendy’s rise as investors have grown in both sophistication and size.
‘It’s very high on our radar. We look at all the cities in North America. While Toronto and Montreal aren’t quite on the same tier as New York or Boston, for example, they are certainly on the next tier in terms of our focus. We really don’t tend to go outside of Toronto and Montreal,’ he says.
For German sportswear giant Adidas-Salomon, Canada has become more than an irrelevant backwater stop on a North American tour. ‘We try to keep in constant contact with Canadian investors. So Toronto and Montreal are spots on the landscape that we try to visit at least twice a year,’ says Rolf Grass, head of investor relations. Grass admits he’s unaware of the extent of ownership of his company by Canadian interests, but he still makes the trip and keeps up communication.
‘We usually do one-on-one meetings, and we usually work together with a broker. In general we see the big accounts. Whether they hold our stock or not doesn’t matter, because we don’t treat our active shareholders very differently to the ones we regard as potential shareholders,’ says Grass.
ITT Industries’ New York-based director of investor relations, Ralph Allen, says that he didn’t prioritize Canada on his itinerary until he was contacted by Toronto-based Trimark Investment Management, one of Canada’s largest mutual fund managers with roughly $13 bn under management.
‘What originally raised my awareness was Trimark, which exhibited interest in our stock,’ says Allen. ‘Their senior analyst basically wanted to get to know us. He and their CEO met with our top management in Canada, and asked some very good questions.’
As for an increase in recognition of Canadian investors, Allen acknowledges he is traveling north more frequently. ‘Now we go up to Canada two to three times a year for conferences as well as one-on-ones. And, of course, I always check in with Trimark,’ he says.
Off the beaten track
While Toronto and Montreal get top billing, other Canadian investment centers are gaining attention, though the number of out-of-town visitors would barely register a trickle in many second-tier US cities.
Indeed the idea of traveling to Winnipeg or Edmonton may strike a chill in foreign investor relations officers. But by putting pressure on brokers to deliver a company now and then, these areas do enjoy the occasional IRO visit. And it’s more and more common for companies to add Vancouver – a city with over $11 bn concentrated in four or five offices – to a coast-to-coast sweep.
‘Put it this way: if there’s a deal or that type of roadshow, they’d never pass through Vancouver,’ says Pat Naccarato, vice president of US equities for Phillips Hager & North, which manages roughly $5 bn in equities. ‘If they’re doing a West Coast roadshow, and they know we’re a shareholder, they may come by, depending on how much pressure we put on them to make the extra effort.’ Overall, Naccarato estimates he sees roughly one US company per month, and these tend to be small companies from varying sectors, with most of the visits set up by US brokers.
As a portfolio manager of US equities for IG Investment Management and its Investors Group mutual fund family, Terry Wong admits that most companies aren’t willing to make the journey to Winnipeg. Despite overseeing some $14 bn in equities, his firm, short of attempting blackmail, is unable to draw most foreign IROs to the province of Manitoba.
‘Most people don’t come up to Winnipeg. We see a few more companies coming through than we did in the past, but we’re still isolated from the financial centers of Toronto or Montreal. Sometimes when they’re going to Minneapolis, they’ll come up here if we ask them to. So I might see one or two companies per month,’ says Wong.
David Mills, principal of Mills Investor Relations, agrees that most foreign IROs are not going to make it to Winnipeg just to see Investors Group. ‘But they are going to Calgary and Vancouver, often as an extension of a West Coast visit,’ says Mills.
Although Adidas-Salomon has not ventured outside Toronto or Montreal, Grass says it isn’t out of the question: ‘We do these kinds of things. We go to Denver to see two accounts. We go to San Francisco to see three accounts. We try to combine it all in one trip. If we see people are interested in us, we try to contact them. If someone tells me that there’s an investor sitting in Winnipeg and he’s interested in us, we might try to arrange a meeting.’
Ralph Allen admits he hasn’t yet strayed off the beaten track, instead focusing on Toronto and to some extent Montreal. But he says he’d consider other cities, particularly if the foreign investment cap on retirement savings were raised to 30 percent. ‘Part of it is just a question of having adequate screening and knowing who’s up there,’ he says.
Pros and cons
Typically, Canadian investors are focused on domestic equities: they are limited on the amount of assets they can invest in foreign companies, so the bulk of their research has traditionally been Canadian specific. This is changing as investors look for the liquidity of foreign stocks, respond to heightened performance pressures from a growing number of customers, and anticipate greater exposure following a widened foreign investment cap. But according Philip Koven, director of National Investor Relations, a division of Canada’s National Public Relations, this has created problems for IROs planning presentations.
‘I would say the biggest problem is that you have a very widely divergent level of knowledge of the investor you’re coming to,’ says Koven. ‘Say you’ve targeted five different institutions on your trip, you’re very likely to have five very different levels of knowledge or understanding about your company. Sometimes you plan for a more sophisticated audience, and you find the institution you’re visiting doesn’t know your company as well as they should. The hardest part is reacting to the level of knowledge of the person you’re visiting.’
But investor relations officers who are making the extra effort to build ties with Canadian investors clearly think it is worth their while. ‘Are the meetings successful in the sense that we keep our potential shareholder base informed? Yes. Successful in the sense that have we met with interest in our stock? Definitely,’ says Adidas-Salomon’s Grass, though he admits that it is difficult to measure ownership of his stock due to Canada’s disclosure rules.
The most convincing argument for a Canadian visit is made by ITT Industries. The Toronto-based Trimark, which first contacted Allen for a ‘get-to-know-you,’ began buying the company through two separate mutual funds. Ralph Allen built up a relationship with the firm through direct contact, which included one-on-one meetings. ‘Trimark went on to become a 13G filer for our stock, and they’re still firmly among our top five shareholders,’ says a pleased Allen.
