Investor targeting may be one of the most important responsibilities for investor relations officers (IROs) and companies. The primary role of the IRO in every company is to attract the right profile of investors, who understand the company's business model and remain invested for the long-term. However, finding the "right one" maybe like finding a needle in a haystack. In reality, many companies have little idea where to start. Some larger companies may have already spent a considerable amount of resources in engaging with investors across different countries, but if investor targeting is not properly conducted, oftentimes the IR effort could be in vain. In order to maximize the ROI of investor relations efforts and use senior management time efficiently, it is crucial for IROs to conduct proper investor targeting to engage with investors.
What is investor targeting?
Investor targeting is the process of identifying, profiling and engaging appropriate or potential investors. The process involves getting access to and analyzing your current investor data, and creating an effective strategy on how to analyze investor gaps and identify potential targets. Through investor targeting, companies can gain a better understanding of the investor landscape and also strengthen and enhance their shareholder base, while adding new investors that help to maximize shareholder value.
Where to start?
So how should a company or IRO start with investor targeting? The first and foremost step is to understand your company's shareholder list. Getting to know who and what kind of investor is most interested in your company and why. This also helps to profile your company. Is your company growth-oriented, or value-driven? Is it a large-cap or small-cap? Does it belong to any specific industry cluster? Does it wish to attract long-term investors or short-term investors? Answering these questions will help you develop a targeting strategy.
Having completed your company's profiling, you will then need to look for investors who will be drawn to your company's profile. Institutional investors are often required to analyze a universe of stocks that fit within the parameters of their fund's investment mandate. This may require a potential investment in a company to fall within a certain size and liquidity (i.e., market capitalization or daily trading volume), stock characteristics (e.g., growth, GARP, momentum, or value), sector, geography, risk or environment, social responsibility, corporate governance (ESG) factors. When researching investors, it's important that you understand these parameters so you reach out to those whose investment mandate and interests align with your company profile.
Alternatively, you could also take a look at the list of investors who have invested in your peers. Cross-referencing shareholders from peer groups will provide a relevant list of investors who already understand your industry, which helps to target investors more efficiently and effectively. These investors have likely done their research and may already be interested in the sector. Therefore, when approaching these investors, you can focus on your story rather than on having to educate the investor from the beginning.
Attending conferences, corporate days, and roadshows also offers an efficient opportunity to meet and attract potential investors, as the company may get to meet a large number of investors in a short period of time. In particular, attending thematic conferences (e.g. technology, consumer, or small-cap) provides the opportunity to meet with groups of investors who have a specific interest in your industry and business. Separately, a company or IRO could also gain valuable face-to-face time with investors by inviting them to results conferences or an event at your office. For example, take advantage of opportunities to host investors onsite, and organize an onsite investor day or production plant visit. Self-hosting investor events have become more important as MIFID II regulations have reduced brokers' resources in hosting conferences or roadshows, particularly for smaller companies.
Reminders when conducting investor targeting
Culture is often overlooked when targeting investors. While the capital market is already very globalized, there are still slight differences among investors in different geographies in terms of their view and outlook toward a company's fundamentals, risk, valuation, and other topics. For example, in our experience, Europe-based institutional investors generally place a greater emphasis on topics related to ESG, while US-based institutional investors tend to focus more on the long-term strategy of a company. It's important to understand what drives your audience and what they are looking for, so you can address it effectively in your communications. Failure to do this could result in your company being overlooked for investment.
In today's world, investors are thinking and investing globally so it is important that IROs think internationally too. English remains the main language in communicating with global investors, so make sure all of your communication materials are available in English. Also, when researching potential investors, companies and IROs should not restrict your focus to the main investment hubs only. Going beyond top-tier investor cities can pay off with new and different groups of investors, as there are also quality investors in second or third-tier cities.
The Bottom-line
As a company, investor targeting is a very critical exercise in developing proactive investor engagement and gaining access to new pools of capital, and raising your corporate profile. Well-developed and well-executed targeting can ensure that you are attracting the right type of investors, while also maximizing value for your shareholders.
Editor note:
To give our readers a more in-depth and comprehensive knowledge about investor relations from the investor's perspective, DIGITIMES has invited QIC as a contributing partner to share their insights. The article is the third part of the QIC Inside Investor Relations Series, which was originally published on QIC website.
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