A Match.com for Investors Will Bypass Banks to Gain CEO AccessBy and
Startups make pitch to set up meetings with fewer conflicts
Investors spend $2 billion a year for corporate access
A group of upstarts is seizing on new European Union rules to shake up banks’ matchmaking role between investors and corporate executives.
As investors prepare for EU regulations that will force them to pay for research products a la carte, one of the most valuable services is corporate access -- the conferences, roadshows and face time with executives that can provide an information edge. Investors globally spend more than $2 billion a year for corporate access, according to consulting firm Greenwich Associates.
That spending was typically baked in to trading commissions paid to a bank. Making it a separately priced service provides a big opportunity for people like Adrian Rusling, founder of a site that counts executives at BlackRock Inc., Credit Suisse Group AG and FedEx Corp. among its users.
“It’s like Match.com,” said Rusling, who started CorporateAccessNetwork in 2013 as an offshoot of a investor-relations firm based near Brussels. “Instead of boys meeting girls, it’s companies trying to meet investors. We thought, ‘Let’s democratize this industry a bit and open it up a bit more.’”
Planning for Europe’s MiFID II rules, which take effect in January, has driven a 50 percent surge in daily user requests so far this year, Rusling said. The firm isn’t alone. WeConvene and ingage are also among independent players vying for a bigger slice of the fees. The scale is tiny -- Rusling says banks probably dominate about 95 percent of the market -- but competition is heating up as funds move to slash costs and as bank research desks shrink.
While corporate access has long been the subject of scrutiny over whether it gives some investors an unfair edge, it’s seen as a useful way for executives to explain their strategy and for asset managers to get a better sense of a company than filings can provide. The stakes are high: Rusling estimates that a one-on-one meeting with a big name CEO could be worth as much as $20,000.
The startups are seizing on the potential conflicts of interest in setting up meetings that have led regulators to change the rules. Because it was funded by trading fees, banks often provided the best corporate access to clients that were the most active, rather than those who might be the best long-term investors for a company, regulators have said.
That critique has rung true with some corporations. Jeff Smith, who works in investor relations at FedEx, said that while he often taps Wall Street research desks to reach investors, there can be a downside.
“There’s certain buy-siders they do business with and some they don’t, and at times they’re reticent to invite people they don’t already have a customer agreement with,” Smith said by phone from FedEx headquarters in Memphis, Tennessee. He said that’s one of the reasons he’s a client of CorporateAccessNetwork.
Banks, who are in discussions with clients about research pricing, won’t give up the corporate access business easily. They have the advantages of well-established conferences and deeper corporate relationships.
Still, changes are coming. Regulators, led by those in the U.K., have said the commission-based arrangement sometimes meant funds were spending more than if they separately paid for corporate access. It also wasn’t clear to funds’ clients whether fees were directly benefiting their own investments, as opposed to boosting the asset manager’s overall relationship with a bank.
The European Securities and Markets Authority made its stance more explicit this month, saying research and corporate access must be priced separately and brokers can’t subsidize the cost of corporate access through payments they receive for research. Paying brokers explicitly for access, or approaching executives directly or via third-party platforms would sidestep conflicts, the regulator said.
That’s where firms like ingage come in, says Michael Hufton, managing director of the access service site.
“More and more buy-side firms are going to approach corporates directly,” said Hufton, based in ingage’s London headquarters. “We’ll see this activity morph away from sell side to other channels.”
Hufton says MiFID II is a big driver for business and that ingage has had more sales so far in 2017 than it did all last year. It charges a subscription to access the system, which offers direct contact between companies and investors. The meeting allocation is determined by the corporation rather than ingage, which also allows private feedback between the sides. Schroders Plc is a client of ingage, according to the firm’s website.
CorporateAccessNetwork says it charges companies 100 euros ($108) a month to use a premium version of its web-based platform to set up meetings. WeConvene, which owns broker ranking service Extel Surveys, also offers a product that uses technology to help make the process of corporate access and analyst events more efficient. WeConvene has a partnership with Bloomberg LP, the parent of Bloomberg News.
The new rules will allow the startups a fresh chance to make their pitch: that they can provide the investors who companies want to meet.
“I can trust that he’s going to reach out to not only the fast-money hedge funds, which typically pay a lot of commissions, but also the holders FedEx would prefer: long-term holders,” Smith said. “We have always used a mix of methods to get our message out to investors. There’s more than one way to skin a cat.”
— With assistance by John Detrixhe