Canada is known for its wide open landscapes, tasty maple syrup and friendly people. This openness applies to its investment communities, too, making Canada’s main financial centers, Toronto and Montreal, welcoming places to visit during a North American roadshow.
Canada’s cities are also attractive because of their density in wealth. For example, Toronto is the country’s biggest financial center, responsible for an impressive $386 bn (C$458 bn) in terms of equity assets. This is distributed among around 200 buy-side institutions, with most residing near Toronto’s famous Bay Street. Montreal is the runner-up, with its buy side managing just under $100 bn in global equities and featuring some 50 buy-side accounts also located closely together.
‘You can certainly spend two worthwhile days in Toronto – there are at least a dozen firms you should do a one-on-one with, and perhaps another 20 or 30 that would attend a group lunch,’ says Brian Lynch, director of investor relations at ING Canada, a property and casualty insurer based in Toronto. ‘In Montreal you probably need only one full day. There are perhaps five institutions you can’t miss, and you can likely get ten to 15 firms to attend a lunch meeting.’
Canadian investors’ growing appetite for international investments is luring more roadshows here. This is mostly because Canadian institutional investors managing deferred tax portfolios for pension funds and personal retirement accounts are no longer constrained to a 30 percent limit for investing in foreign stocks.
‘That limit was lifted in the most recent Canadian federal budget,’ explains Jane Watson, vice president of IR at Toronto-based CGI. ‘Therefore, there is a greater opportunity for foreign issuers to market their securities in Canada.’
Investing styles
Toronto and Montreal offer a wide range of investment styles, but growth and value players are the most common in Canada. ‘In Toronto there is about an equal split between growth and value institutions, but there are also several other firms, including approximately 39 hedge funds,’ notes Susan Herman, managing director at Christensen, an IR consultancy based in the US and Canada. ‘In general terms there are at least four times as many institutions in Toronto as in Montreal, where there are around 26 growth institutions and 16 value, so investors there are more growth-oriented.’
Because pension funds and mutual funds are big players in the Canadian investment market, and hedge funds are a minority, many portfolio managers here tend to take long-term positions in their investments. For instance, the Ontario Teachers’ Pension Plan (OTPP), one of the top buy-side institutions in Canada, is a value player that covers about 200 companies and invests for the long haul.
Brian Gibson, senior VP for public equities at OTPP, explains the fund’s investment style: ‘We have a large global equity program, with about $30 bn invested in traded shares all around the world. We don’t have a sector preference, but what we do is focus on bottom-up company analysis. We analyze and value companies, and where we think the shares are attractive, we will buy them. We have a bit of a value orientation with a touch of long-term vision.’
Aligned with their long-term view, portfolio managers here like to use one-on-one meetings to test senior management’s ability to create value. ‘We do not ask managements about their next quarterly earnings – we have no interest at all in that kind of material,’ says Gibson. ‘What we do talk to them about is what their longer-term strategy is, where they want to move their company to in the next five years, how they are going to execute strategy, and what their strengths or weaknesses are – and how these will influence their ability to achieve that business plan.’
Corporate governance is a real hot-button issue with Canadian investors, which will be looking at top management’s records and are bound to ask questions if they find any red flags. ‘Whether we ask a question [about governance] depends on whether there is an issue dealing with governance,’ explains Gibson. ‘Specifically, we are very focused on executive compensation. What we try to see is whether management’s interests are aligned with our interests as a shareholder or potential shareholder.’
Vital homework
Doing your homework on investors before coming here is a must, as they will most certainly do their own due diligence on your company prior to meetings. ‘Canadian investors tend to be very diligent; they do a lot of homework and prepare thoughtful questions,’ points out Herman. ‘They also tend to be timely, and they appreciate when management demonstrates the same level of respect for them.’
Brian McInerney, managing partner at BarnesMcInerney, a capital market communications firm based in Toronto, advises a survey of investors to find out which institutions would be most interested in a company’s story. ‘There are about 20 serious players interested in European stocks; it’s a select group and you want to make sure you are not wasting senior management’s time,’ he explains. ‘Having a pack of materials to send to investors to help qualify their interest in your company and allow them to do their homework is vital.’
Investors’ general knowledge of your company will vary here, as some portfolio managers will have been following your story for a while, and others will be showing genuine interest for the first time. It is recommended, therefore, that you give investors the option of doing a standard presentation, or just going straight to Q&A. Generally, meetings here should run for an hour, with a maximum of 15 minutes dedicated to a presentation and the rest to Q&A.
Keep in mind that analysts and portfolio managers here take what CEOs and CFOs have to say very seriously. Make sure no absolute promises are made by senior management, as Canadian investors will call you on it in follow-up meetings. ‘We often see investors coming to one-on-ones with notes from past meetings. They tend to follow up on these notes and look for delivery on milestones,’ explains Lise Hébert, vice president of corporate communications at Neurochem, a Laval-based biopharmaceutical company. ‘Investors here call me for financial status, clinical trial updates and so on, especially as they apply to my sector.’
Getting around
Toronto’s financial center is quite easy to navigate, as most buy-side institutions are within walking distance of each other in the Bay Street area. Toronto also has an extensive underground infrastructure called the Path, which lets you walk around without a coat during the harsh winter. This is not to say you shouldn’t hire a car service while here, as lugging around presentation material on foot can be difficult.
Montreal’s financial center is more spread out than Toronto’s. Between the subway and subterranean shopping malls, you can get away with walking, even in the dead of winter. But it’s best to hire a car service here, too, as a time-saving measure.
Both Toronto and Montreal have extensive underground infrastructures. They’re safe and clean and connect to all the major offices and buildings, which house the majority of the financial institutions. Therefore, when selecting venues, make sure they link to the underground network, as local investors appreciate this convenience when traveling to meetings.
You can fit in five or six one-on-one meetings and one group lunch meeting in a day while in Toronto or Montreal. Meetings before 8 am are not very popular in Canada, and dinner meetings or cocktail parties are unusual. It’s best to schedule lunch gatherings to achieve the highest attendance when doing group presentations.
Most institutions here really appreciate meeting with senior management on a one-on-one basis, building a strong relationship over time. Therefore it is best for senior management to go to Canada at least once a year – if not twice – to meet with portfolio managers. ‘When we decide to follow a company, we make a real commitment to it,’ says Gibson. ‘We follow it for a long time, so a company would be seeing the same people here time after time. At least twice a year is a good average for touching base with companies.’
Montreal may be in French Canada but the language of business is largely English. Still, it is wise to extend a little courtesy to the French speakers here. Saying bonjour and au revoir is the least you can do, and quality translation of some of your handout materials may well be appreciated.
Finally, don’t be too fooled by Canadians’ friendly nature, as they are just as tough as any investor across the border. ‘Because the Canadian audience is so polite and demonstrates a high level of preparedness, sometimes companies can mistake a general good nature for genuine interest,’ explains Herman. ‘Management may think the investor is interested to the point that it will take a position, whereas it is simply its nature to be that attentive.’
