When you mention California these days, people automatically think energy crisis. For their part, Californians are beginning to abhor the media’s portrayal of an entire state in the dark. As for San Francisco, it has been somewhat sheltered from the blackouts caused by deregulation of the energy industry in other parts of the state. The San Francisco Convention & Visitors Bureau reports no cancellations of meetings due to the energy situation, so far. Besides, San Francisco is a walking city; if the power does go out, there are lots of things to do. Fisherman’s Wharf has plenty of street performers who don’t seem to need any electricity.
All kidding aside, San Francisco is California’s premier money center. With a strong buy side represented by the likes of Dresdner RCM Global Investors, Aim Funds, Guardian Capital Management and Wells Fargo, this city should be a travel destination for all management teams. Most major sell-side firms have analysts located in the area with technology as the most commonly covered sector.
There are also a number of regional and national firms that have analysts based in San Francisco, including Banc of America Securities, Dain Rauscher Wessels and Epoch Partners. Sell-side firm Harkness & Hill recently opened an office in the Bay Area. Currently, only H&H’s investment banking is being run out of its San Francisco office, though the firm has plans to move a number of healthcare analysts out west in the near future.
Penetrating the local buy side requires some planning. ‘San Francisco’s buy side is very fragmented and therefore harder to get to,’ suggests Ronald Sloan, portfolio manager at Aim Funds’ San Francisco office. ‘When visiting Boston you can go to five or six different funds and see 70 percent of the money in the city. It’s not that way in San Francisco; you’ve got a big hedge fund, Bowman Capital, in San Mateo and then you have Dresdner RCM and Guardian Capital both located downtown – those three organizations don’t even represent a tenth of the total money in town.’
The Bay Area buy side has a reputation for being quant-driven. ‘There are a large number of quantitative investors here; not necessarily passive investors but active managers using computerized techniques to select stocks,’ explains John Lewis, president of Valtechs.com. Lewis is in the business of analyzing portfolios and matching companies with managers and funds. ‘As opposed to qualitative money managers, these investors are not really interested in meeting with companies; they just look at the fundamentals.’
With $280 bn under management, Wells Fargo is one of the biggest local investors renowned for its quantitative style. Symphony Asset Management is another big name with a reputation for using quant analysis to choose stocks. ‘Symphony is very successful and a lot of money managers adopt their quantitative techniques,’ notes Lewis. The firm was formed through a partnership between analytical-software manufacturer Barra and four entrepreneurs, and is in the process of being sold.
Even though there is a high percentage of quant portfolio managers based in San Francisco, IROs should not be discouraged. There are still a fair number of buy-side firms that are open to meeting with companies coming through town. Franklin Funds, RS Investment Trust Funds, Montgomery Funds, HighMark Funds, Dresdner RCM Funds and Van Wagoner Funds are all receptive to face-to-face meetings with management. ‘Most of the larger shops use a formal screening process,’ notes Rupert Grimm, chief investment officer at Berkeley Capital Management. ‘But, if you are a smaller company, you might appeal to some of the hotshots in town who are not into the orderly process so much,’ he adds.
Despite the market downturn, San Francisco still boasts a healthy population of aggressive-style investors. ‘We have a lot of aggressive growth managers here who like tech,’ qualifies Grimm. Growth managers have been hit pretty hard in the last year and ‘have been losing more accounts’ than gaining new ones, he adds.
Growth managers who err on the conservative side have definitely survived better than highly aggressive funds. ‘It’s simply a difficult time,’ notes Scottie Spurzem of Spurzem Consulting Group. ‘There is so much negative information coming out of companies with regard to their earnings, and it is clear that most companies do not have a very good picture of how business will play out through year-end,’ she adds.
East vs west
Rupert Grimm, who began his career as an analyst in New York for Goldman Sachs, says there is a dichotomy between the east coast and west coast investment communities. ‘People don’t believe it, but there is,’ he asserts. ‘The eastern establishment prefers companies in their own backyard.’
Grimm witnessed this split ‘back in the old days’ when he noticed eastern-based Lucent being sold at a much higher multiple than California-based Cisco. ‘It used to drive me crazy; it was an eastern mentality.’
As chief investment officer at Berkeley Capital Management, Grimm focuses on large-cap growth stocks. Berkeley Capital currently has around $2.5 bn under management. Grimm does not accept meetings with companies unless he has a strong feeling about them. ‘It’s pretty hard for companies to just come in for a meeting; it’s much more of a process,’ he says.
In his analysis, Grimm looks for companies with a minimum capitalization and above-average growth rate. Once he has assembled a group fitting those criteria, he focuses in on companies that are doing well. He says he ‘wants to hear their vision’ when meeting with companies for the first time – how they are positioning the company, how they are responding to competitors, and how they can grow. ‘From my point of view, it all gets down to very specific things like how a company is exploiting its strengths and weaknesses and how it’s going to achieve better than average profitability.’
Aim Funds, with $2.5 bn under management in its San Francisco office, is one of the largest mutual fund companies in the US. Ronald Sloan runs a mid-cap equity fund at Aim as well as serving as a manager on the firm’s global resource fund.
Sloan, who defines mid cap as $1-10 bn in market cap, follows a Garp (growth at a reasonable price) philosophy. ‘We don’t use a quantitative approach, although Aim is famous for that,’ he says. ‘With this particular fund, we look for companies that are truly cheap growth companies.’ Besides Sloan’s mid-cap equity fund, Aim runs three other funds out of its San Francisco office – a global fund, a healthcare fund, and a Canadian and global resources fund.
Sloan says most companies do a pretty good job of presenting their story. When meeting with management for the first time, Sloan focuses on how the company got to its present state – ‘whether it was through a planned series of circumstances and actions or if it came through happenstance,’ he specifies. ‘If a company is rebounding from a particular situation and trying to renew investor interest, I want to know about the milestones or guideposts the Street can monitor to ensure management is turning the business around.’
Bay locations
San Francisco’s investment community is predominantly located in downtown San Francisco. There you’ll find investors such as the Capital Group, Dresdner RCM, Wells Fargo and Husic Capital Management, to name a few of the bigger money managers. ‘Depending on your company’s investment appeal and management’s time, you can broaden your company’s exposure by looking beyond San Francisco’s financial district,’ says Scottie Spurzem, who in addition to running her own IR firm is president of Niri’s San Francisco chapter. There are a number of other money managers who have their offices in the North Bay, including Wood Island Associates, West Highland and KCM Advisors. ‘These are the sort of investors who are off the beaten track, but certainly have plenty of money to invest,’ notes Spurzem.
There are also money managers in the East Bay such as the Regents of University of California, Jurika & Voyles and Sife. And on the way to Silicon Valley, from Redwood City to San Jose, there are many money managers and corporate foundations to visit.
For example, the Franklin Funds and Bowman both have their offices there. ‘You truly have to do your research to find out which ones to target,’ suggests Spurzem.
The more one knows about San Francisco’s scattered investment community, the better. ‘If I were going to approach a fragmented market like this one, I would hold several group meetings with four or five different portfolio managers,’ suggests Sloan.
According to Sloan, Bay Area portfolio managers are used to attending group meetings because the market is so spread out. However, most money managers – especially in larger institutions – still prefer one-on-one meetings held at their offices. ‘With Reg FD, there is less inclination among portfolio managers to attend group meetings because they aren’t going to learn anything new,’ notes Valtechs’ Lewis.
Initiating contact with San Francisco-based investors involves research. ‘The first step for an investor relations officer is finding out about the structure of these institutions,’ says Lewis. When targeting the buy side, you have to decide whether to target the industry analyst or the portfolio manager. ‘If it’s Dresdner RCM you are targeting, they invest in small, mid and large-cap companies and they have around 20 analysts,’ says Sloan. ‘You would probably want to go through their research director to find out which analyst to speak to.’ Grimm adds that it may be easier to make initial contact with an analyst rather than a fund manager.
There are plenty of popular venues for group meetings in the downtown area, with an average size of 25-30 people. The best advice is to book one of the local hotels that offer facilities for small or large group meetings. According to Howard Christensen of Christensen & Associates, the Mandarin and other hotels have always been preferred by the financial community. ‘We typically do not use private clubs due to their lack of the latest audio visual equipment, the uncertainty of the service and their non-competitive costs,’ explains Christensen.
Media relations
For Bay Area media coverage, there are lots of good targets. There are a number of daily newspapers with business coverage as well as a handful of trade journals. ‘There are two main daily newspapers in San Francisco: the San Francisco Chronicle and the San Francisco Examiner,’ says Janet Lynn, vice president of Business Wire’s San Francisco office. Hearst Corporation, former owner of the San Francisco Examiner, bought the San Francisco Chronicle two years ago. As part of the deal, Hearst agreed to sell the San Francisco Examiner to Ted Fang, publisher of Asian Week.
The Chronicle has by far the largest circulation of the two dailies and provides good coverage of industries key to the area’s economy, such as energy, biotech, telecoms and new media. ‘The Chronicle also covers international business news focusing on stories that affect local industries such as technology,’ Lynn reports.
According to Lynn, technology companies in particular should also think about contacting business editors at the San Jose Mercury News. San Jose, which is about 60 miles south of San Francisco, is in the heart of Silicon Valley and the daily paper provides good coverage of the industry.
‘Normally, trade publications are easier to approach than daily newspapers,’ notes Neal Rosen, principal of Kalt Rosen & Company. The San Francisco Business Times and the San Jose Business Journal are two local business journals that are good targets.
‘The best way to approach these publications is to create a local hook,’ notes Rosen. ‘For example, if you are the IR contact for a semiconductor company that competes with Intel and your CEO can provide perspective on the industry, you have a better chance of getting media coverage.’
Visitor information
Where to present:
Metro San Francisco
Mandarin Oriental
222 Sansome Street
Tel: +1 415 276 9888
Hyatt at Union Square
345 Stockton Street
Tel: +1 800 233 1234
Hyatt Regency
5 Embarcadero Center
Tel: +1 415 788 1234
Park Hyatt
333 Battery Street
Tel: +1 415 392 1234
Ritz Carlton
600 Stockton at California Street
Tel: +1 415 296 7465
San Jose
Fairmont
170 South Market Street
Tel: +1 408 998 1900
Where to stay:
Hilton San Francisco & Towers
Mason and O’Farrel
Tel: +1 415 771 1400
Warwick Regis Hotel
490 Geary Street
Tel: +1 415 928 7900
The Pan Pacific Hotel
500 Post Street
Tel: +1 415 771 8600
Grosvenor House
899 Pine Street
Tel: +1 415 421 1899
Where to eat:
Aqua
252 California Street
Tel: +1 415 956 9662
Hawthorne Lane
22 Hawthorne Street
Tel: 1 415 777 9779
The dining room at the Ritz Carlton
600 Stockton at California Street
Tel: +1 415 296 7465
Ruth’s Chris Steak House
1601 Van Ness Avenue
Tel: +1 415 673 0557
Sabella’s Restaurant
2766 Taylor Street at Jefferson
Tel: +1 415 771 6775
Major buy-side institutions
Wells Fargo
Dresdner RCM Global Investors
Aim Funds
Guardian Capital Management
Symphony Asset Management
Media contacts
San Francisco Chronicle: Ken Howe, business editor
San Francisco Examiner: Nicky Penttila, business editor
San Jose Mercury News: David Satterfield, business editor
Oakland Tribune: Drew Voros, business editor
San Francisco Business Times: Elizabeth Drachman, technology editor
San Jose Business Journal: Bernie Silver, managing editor
Source: Business Wire
Major sell-side firms
Banc of America Securities
Dain Rauscher Wessels
Epoch Partners
First Union Securities
Fulcrum Securities
Gerard Klauer Mattison & Co
ING Barings
Moors & Cabot Technology Research
Pacific Growth Equities
Portsmouth Financial Services
Prudential Volpe Technology
Redwood Securities
Robertson Stephens
SG Cowen Securities
Shemano Group
Spare Kaplan Bischel
Sutro & Co
Thomas Weisel Partners
Wit Soundview Corporation
WR Hambrecht & Co
