Do you know what percentage of your investors are passive versus active? If so, has the number grown recently?
Institutional investors own approximately 25 percent of our outstanding shares, with the majority – about 23 percent of that 25 percent – being active investors that I regularly speak to. According to 13F filings as of December 31, 2016, Vanguard just took close to a 1 percent ownership stake in our company. It’s funny because I’ve never spoken to anyone at Vanguard and nor has our CEO.
How is the rise of passive investing changing your IR messaging?
There have been several occasions during the past two years on options expiration days and index rebalancing dates when we experienced increased volatility in our share price. I think it’s important to know that this is a trend and to communicate back to management and the board that an increase in passive investors could potentially mean greater volatility and greater liquidity.
Can you think of any examples of how passive investment might have an impact on your company’s stock price?
A lot of passive investors will vote with ISS, but you never know. They could become important if there’s an activist campaign or an extraordinary meeting of shareholders. In those instances, passive investors could have a significant impact on the direction in which a company goes.
How else is passive investing impacting the life of an IR professional?
I think one of the major concerns for me as an IR professional is that if passive investing continues as a trend, it might make it more difficult for companies to access the capital markets and raise money. Let’s say you’re contemplating a secondary offering: if you’re having a dialogue with investors regularly, it’s much easier for the investment bank to reach out and say, ‘This company is raising X million dollars – would you like to participate in this next round?’ A lot of companies are doing confidentially marketed public offerings (CMPOs), in which they go out to investors at the end of the day and close the order loop by the next morning. It would, for instance, be extremely difficult, if not impossible, to go to some of these index funds and ask them if they’d be interested in participating in a CMPO.
This article appeared in the summer 2017 issue of IR Magazine
