Investor Relations - A Practical Guide - Investis

Company Sponsored/Paid-for Research
A Fund Manager’s View
Gervais Williams, Head of UK Small Cap, Gartmore Investment Limited
As a fund manager in the Small-Cap space, an area
comprising a large number of companies who are
not always widely researched, we regularly use
paid-for research reports (research reports
commissioned and paid for by quoted companies
and procured from independent equity research
providers) to support our decision-making process.
We have found such reports useful as part of our
research process as it means we have more
information about a company. Indeed we also utilise
such research as we find it may add value when
marketing our products by providing a third-party
opinion to support investment decisions.
The availability of paid-for research, often referred
to as company sponsored research, has the
potential to bring a greater number of active
participants in the stock trading of a company. It
may be easier to raise new capital and increase
liquidity of the shares already in existence if a
broader base of potential investors is familiar with a
company. Reducing the liquidity risk premium
should be reflected in a more favourable share
price. Additionally, improved liquidity is a factor
which improves the likelihood that a larger number
of fund managers may consider the company. The
time taken to liquidate fund holdings is an important
consideration for managers of open-ended funds,
who may need to sell assets to fund redemptions
and cannot afford to have large positions which
may be difficult to sell.
Paid-for research also widens the range of
opportunities available to investors who are not
able to meet the management of companies being
considered for purchase. While institutional
investors are able to gain access to the
management of such companies and possibly
spend time with them, not everyone has this
opportunity. With a large universe of quoted
companies, it is difficult to meet every company
even if you do have access.
It is sometimes difficult to ascertain whether the
research provided is sufficiently objective. We
have found that research companies are keen to
develop a reputation for quality and for this reason
they are very careful about what they publish. While
companies will be able to review factual
information, typically they are not permitted to
influence the opinions expressed by the
researchers. As a result, paid-for research
companies’ opinions are taken more seriously
because they are willing to be critical of the
companies they research.
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What Investor Relations is and who it is aimed at