What fund managers are looking for from your IR program right now
Good afternoon, everyone,
And happy almost-Thursday to those of you reading here in MENA as we look forward to the end of the first workweek of Ramadan.
Over the past week, we’ve been canvassing bold-name fund managers in the US, UK, France and Switzerland about what they’re looking for amid the intense uncertainty roiling markets right now. We’ve spent even more time on calls between investors and our regional investor relations clients — including managers with global and regional firms based out of DIFC, Riyadh, London and New York. And, finally, we’ve worked on correspondence between our clients and investors who have questions — and demands.
All told, we’ve spoken / interacted with several dozen investors who look at MENA / emerging / frontier markets from just about everywhere that matters except for South Africa.
Here are the seven key takeaways on investor psychology right now — and what they’re looking for from your IR program.
#1- Investors are still in triage mode. They’re trying to sort out who’s going to survive The Great Lockdown — and they’re finding it challenging given the amount of uncertainty about economies at the national and global levels. The most often-cited criteria they’re using to decide who they like:
- Their view of how resilient your company’s industry really is.
- The strength of your balance sheet and cash position — do you have the liquidity and firepower to withstand what’s happening?
- Management’s ability to smartly manage cash and resources.
- Openly fessing up to challenges and admitting you are taking provisions or otherwise preparing for the worst.
NB: “Who they like” = who they’re going to try not to sell now (or buy when the market returns).
#2- Be as honest and open as you can. Investors don’t want to hear that everything is great — that you have it all under control. Even companies in defensive sectors are facing challenges right now, and investors know it: Hospitals and labs are seeing less traffic as patients cancel elective procedures. Schools have angry parents asking for refunds. The only really defensive sector right now? The lawyers, and given they’re not listed…
Even if you do have things under control, tell the investors how you got there. What challenge did you overcome? What are you still working on now? What (reasonable) risks do you see coming down the pipe? More than one investor specifically gave colourful praise to Egyptian blue chip CIB for being blunt about challenges and taking provisions, for example.
They don’t expect guidance in the traditional sense. They know it is more difficult than ever to discuss where you see sales or EBITDA coming in this month, let alone for the quarter to come or the year. But they do expect you to give them a solid sense of how the business is faring right now operationally and financially (what are sales like this month compared to last month and the same time last year?) and what challenges you see ahead. They will reward you for honesty in the long run.
#3- Some investors are genuinely desperate, and they’re demanding money. Fund managers’ AUM are through the floor as redemptions are through the roof. And new mandates? Fuggedaboudit. The solution? Literally demand you pay them a dividend — even at a time when the ABCs of business (see #1, above) mean you need to keep as much cash on hand as possible. Resist the temptation to give in, emphasizing that you’re committed to your dividend policy in the long run but are managing the business today for its long-term health. Resilience is fueled by cash.
#4- Go for an easy win and start calculating EPS — and put this quarterand last quarter’s numbers right on the front page of your earnings. More than one investor noted that it’s a quirk that many MENA companies (and most Egyptian corporates) don’t report earnings per share despite it being so easy to do. It’s the standard just about everywhere else in the world.
#5- Don’t take your eye off the ball when it comes to ESG. Investors don’t think companies in the region give ESG its due, and they’re frustrated they have to chase corporates for answers to the questionnaires they send out. They’ll take short answers and a promise to do better, but they need to check the box that you replied. And ESG reporting is too integral to investors now to leave to the marketing team alone — it is now a core component of investment decisions and belongs properly to IR. Not sure where to start? We’re happy to help get the ball rolling.
#6- Investors want to know how you plan to go back to “normal” when covid-19 measures are eased and the pressure to talk about this will naturally rise as their countries “exit lockdown.” It’s the topic of the day in much of Europe and North America, so expect it to be on their minds. You may not have much to say — unless you are, for example, a retailer in KSA who just found out your shops can reopen for Ramadan — but you will need to say something.
The long-term timeline to full normalization is anyone’s guess, so don’t succumb to pressure to crystal balls, but do explain in detail how the business is planning for (a) a return to “normal” and (b) for an extended lockdown (or a lockdown in response to a second wave of infections later this year). Credible answers include how you’re going to remobilize labour, restart your sales cycle / stimulate consumer demand, etc.
#7. Nobody expects to be sitting in an airport lounge anytime soon. PMs love to visit companies: The chance to walk the ground and to take the measure of management after looking them in the eye is part of what active managers sell to their clients to justify their premium. Between flight bans and cost constraints at their own firms, PMs do not expect to be on the ground before fall at the absolute earliest. Now is the time to consider how you’re going to maintain connections over the coming months — a regular series of calls. Make your next results call a video call. Host an ask-me-anything session for your CEO. Send out more frequent email updates.
Face-to-face investor conferences are unlikely this fall and PMs are already tired of low value 1×1 or 2×1 calls studded with technical difficulties. Your access program is going to be judged on quality.
That’s it for this week, folks. Let us know how we can help.