Investor Relations - A Practical Guide - Investis

Institutional Investors
A Fund Manager’s View
Harry Nimmo, Head of Smaller Companies Equities, Standard Life Investments
Knowing your investors
Investors in quoted companies come in all shapes
and sizes with a multiplicity of requirements, risk
tolerances, investment styles and processes.
Indeed no two investors are the same and may
actually approach the purchase of a company’s
shares from equal and opposite directions. It is
fortunate that this is the case as it takes buyers
and sellers to make a market. From an investor
relations perspective, it is therefore important that
quoted companies know their investors.
At the most basic level it is worth knowing whether
an investor is seeking income or capital returns or a
combination of both. An idea of the risk tolerances
of the investors is also of importance. Some
investors for example will not invest in ‘blue sky’
companies that are more concept than revenues
and profits. Other investors follow stock market
indices very closely to reduce risk. It also makes
sense to know whether the investor has large
funds under management or is a small boutique and
whether they specialise in investing in large or
smaller quoted companies.
Growth vs. value
The rudiments of the investment process are of
major importance in the investor relations mix. The
major categories can be broadly termed ‘growth’
and ‘value’ although there is a fair degree of
overlap between the two. Growth investors will be
primarily concerned about the future growth
prospects of the business in question. They may
add ‘momentum’ to their thinking on the basis that
great share price performance has longevity and
may be extrapolated into the future.
The value investor however is looking for
companies that are out of favour because the share
price and/or the business have been performing
badly. They may in particular be looking for a share
price fall, possibly after a profit warning as an
opportunity to get involved in a share. The text
opposite details what fund managers typically
consider when assessing whether to invest in a
company or not.
Long only institutional investors
The group of investors to pay most attention to are
the large, long only institutional investors with good
cash-flow into their funds, a track record at
investing in your company’s asset class and with a
tendency to hold their investments for extended
periods. They are the investors who are likely to be
there for a company’s next round of capital raising.
They are the investors who will add quality and
respectability to your shareholder register thus
encouraging others to invest. It is also worth
knowing the performance track record of the fund
manager or institution involved. If a fund manager
or institution is known in the industry to be
particularly shrewd this in turn might encourage
other investors to ‘get involved’.
At a micro level there are clearly a number of
sources of information for the institutional fund
managers when looking at potential investment.
Broker written research, personal contact,
company announcements, published accounts and
the internet, are all of importance. However, the key
determinant is the face to face meeting between
analyst, fund manager and senior executive of the
company. Potential institutional investors may meet
a company several times before investing and
valuation is often the determining factor in the end.
However it is worth persevering particularly with the
better ‘quality’ investors.
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What Investor Relations is and who it is aimed at