Mark Hynes - thoughts on corporate disclosure

Opinions on changing rules, changing best practices, and their effect on investor relations officers.

Thursday, April 02, 2009

It has been a known for a while that the sell side research model is changing – if it is not broken altogether. With rising costs and CA teams leaving, independent research is gaining in acceptance. Now this debate has been given even more credence by comments Paul Volcker, ex-Fed chairman and Obama guru in The Times, no less.

It may well have a substantial impact on how IR communicates with the buy side.

Broadly the debate goes around the theme that sell side research is nothing more than advertising, and should be acknowledged as such. You can almost hear it.
”This research has been brought to you by…insert investment bank”.

The counter goes that with the revolution in low cost trading platforms, and more transparency in execution fees, there is less money for fundamental research.

Combine this with the evident inverse relationship between sell side recommendations and the actual outcome (as per analysis done by State Street late last year), as well potentially conflicted analysts, and it is evident that there is a momentum towards new ways of informing and influencing the buyside.

What are the implications for IR teams? Traditionally, research has acted as a useful channel to market for the equity story. New channels will be found. These are likely to include resurgent independent research, paid for in hard, rather than soft, money. And that research will need to be innovative and solid, with much of the core, fundamental analysis being done in house by the buy side.

Other changes will include the organisation and support for corporate road shows. With the decline of the corporate access teams, and the potential remodelling of the investment banking trade, companies will need to find other ways of organising investor trips. No doubt commercial firms, with access to investor targeting tools, will step into the breach.

And let’s not forget other communication opportunities. The debate has been on for a while, as to the role of the hard copy and online annual report. Compliance or communications opportunity? Many companies will want to use every channel open to them for communications.

Yet another by-blow of the changes in the banking model.


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