Now that the January 3 implementation date has been and gone and Mifid II is up and running, trends are beginning to take shape in the shifting dynamic of the investor market, with two studies offering specific perspectives.
In the first, investors anticipate significant changes to how meetings with company management are facilitated under Mifid II, according to research for the UK’s Investor Relations Society (IR Society).
This finds that more than half (52 percent) of investors polled say they will now use sell-side corporate access services ‘less’ or ‘much less’, while 54 percent expect to be ‘more’ or ‘much more’ reliant on direct engagement with companies. At the same time, only 25 percent of investors expect to have fewer meetings with company management in 2018.
Conducted in December 2017, the survey attracted responses from 302 institutional investors, including 10 of the top 20 largest global investment institutions. Key findings include:
- 92 percent of investors view corporate access as important or critical to their investment process
- 90 percent of investors regularly used sell-side corporate access teams last year, while 52 percent are now less likely to continue doing so
- 25 percent of investors expect to have fewer meetings with company management this year, while 13 percent expect to have more meetings
- 54 percent of investors will be more reliant on companies contacting them directly in 2018, with only 33 percent planning to use internal resources to manage corporate access.
A number of investors also say they expect companies to be more proactive in arranging meetings, either directly or through independent intermediaries. This is particularly relevant for non-deal roadshows, which 59 percent of investors see as the preferred way to meet company management – by comparison, only 16 percent prefer to meet at conferences.
Half of all institutional investors (51 percent) also do not intend to make any payments for corporate access in the future, with the implied burden falling on companies’ investor relations departments. Among those that remain willing to pay for sell-side corporate access, it is clear that unbundled payments will bring the same additional scrutiny to the cost and quality of meetings as they do to analyst research.
John Gollifer, general manager of the IR Society, comments in a statement accompanying the release of the survey’s findings: ‘The changes wrought by increasingly regulated public capital markets mean we will see a need for – if not an onus on – company management to ensure its investor communications are properly resourced and ready to fill any gaps that appear in the investment process of investors.’
The second piece of research reveals that fund managers in Europe have cut their research budgets for 2018 by 20 percent, as Mifid II drives a reduction in the number of research providers they use, according to US consulting firm Greenwich Associates.
The decline in spending is largely driven by a more selective approach to buying research from a smaller number of banks.
Greenwich’s survey also finds the most dramatic budget changes are seen at fund managers based in continental Europe, which have cut budgets by 32 percent, while a 17 percent drop has been seen at UK firms. Many larger UK asset managers have chosen to absorb these costs, rather than pass them on to clients.
Greenwich Associates last year predicted a $300 mn reduction in external research budgets. Mifid II is noted for requiring research costs to be unbundled from trading costs and clearly identifiable when charged to a client.
Greenwich says the EU directive is also forcing US asset managers to prepare to adopt the standards for their business, echoing findings from a 2017 CFA Institute study, which shows 54 percent of respondents thinking it is ‘very likely’ or ‘likely’ that Mifid II-style research unbundling will be adopted outside of the EU in the next five years.
