Investor Targeting Stuck in a Rut? Try These Ideas to Jumpstart Investor Engagement

It’s no secret that IR teams have their work cut out for them when it comes to targeting new investors. It can be frustrating to receive low interest or even no response at all after significant time invested in researching a list of prospects. Even when the story is good, converting an investor into a shareholder takes time. So, IR teams need to be prepared to play the long game.

This is especially true in the current landscape, and companies struggling to book meetings are certainly not alone. In recent years, broader industry shifts have made it more difficult for company management to connect with the buy side. Sell-side and corporate access teams have progressively fewer resources and shrinking coverage universes, leaving issuers to find other avenues to fill in the gaps on their schedules.

At the same time, companies are continuing to compete for a shrinking pool of capital as actively managed funds remain out of favor. According to Morningstar, in 2022, actively managed funds bled a whopping $926 billion, marking the worst calendar year of outflow as they shrank organically by 6%. In the first half of 2023, these funds experienced roughly $176 billion of outflows— equivalent to 1.5% of assets at the beginning of the year.

Layer on current macroeconomic factors that continue to spook investors, and IR teams will need to be especially strategic, not to mention patient when courting investors in this environment. Here are four approaches that can help companies gain some ground.

Get more creative

We have conducted thousands of rounds of investor targeting for our clients over the years. And we have found the most success and highest ROI is when art and science meet— creativity must be applied to a quantitative approach to successfully identify new investors.

As with every aspect of a good investor relations strategy, targeting begins with a diagnostic rooted in pinpointing why a stock may or may not be getting a second look from investors. It’s possible that current targeting tactics are not putting the IR team in contact with the right investors or that the company’s story isn’t resonating. It’s especially critical to understand the current investment profile, including what may limit investors from taking a position in the stock. There is no better way to understand where obstacles exist and to stay apprised of investors’ perceptions of a company’s strengths and weaknesses than speaking with both the buy- and sell-side. Gather this information through regular communications with the Street and top holders and well-timed perception studies.

In our experience, low trading liquidity, company size, leverage constraints, or lack of a growth catalyst are reasons that keep investors on the sidelines. Using these factors to build an investment profile allows IR teams to target a more refined subset of high-quality firms that are willing to take a position given a set of constraints.

Think like a stock picker

Knowing a stock’s potential limitations is only half the battle. It is also critical to understand an investor’s screens to help identify the firms and funds most likely to take a position. For example, a low turnover growth-oriented firm with $2 billion in equity assets under management that takes concentrated positions is not likely to invest in a company with high leverage and low trading liquidity. It’s also worth considering whether targeted firms have a balance sheet mandate. For companies with limited cash flow and high debt, these firms are unlikely to match the profile in the near term, but they could prove to be a good aspirational fit.

Something to keep in mind is that these same strategies can be used to dive a layer deeper, targeting funds within the broader firms. Many funds have been separated into individual pods with their own corporate access teams. Utilize corporate access to connect with funds that are the best fit and to help understand the strategy and philosophy of each portfolio manager. A stock may fit multiple funds at one firm, which will give IR teams more opportunities to share their companies’ stories and maximize a firm’s buying power.

Don’t stop believing

Just as companies develop current, realistic investment profiles, they can create aspirational profiles that reflect what the company will look like in the future as well as the types of investors it will be able to attract. This is especially important for companies in a period of transition.

IR teams do not have to wait to begin engaging with the firms on the aspirational list. Although a company may not embody the ideal profile for these aspirational targets just yet, it can begin building the relationship, which will put the company’s story on the investors’ radar. The goal is to begin priming the pump, developing a pipeline of warm leads already acquainted with a company’s investment narrative. As a company begins to achieve its goals and momentum in the stock build, these investors are ready and waiting on the sidelines.

Note that the results of this method may take longer to realize in an uncertain environment when visibility for issuers is low and the timing for achieving goals may be unclear.  It’s best to take multiple approaches at once.

Bridge to the future

Remember, just like companies target actively managed money, targeting itself is an active process. It’s far from static, evolving every quarter in response to a company’s progress and the broader market environment.  This may even mean courting “bridge investors” in the interim, helping bridge to the aspirational shareholders long-term. These bridge investors may be firms with a higher risk appetite and fewer liquidity restraints. They may be useful in situations where a company’s market cap or trading liquidity may be too low, or leverage may be too high, for aspirational targets to take a position.

Yes, bridge investors may drive up volatility temporarily, but targets with long-term horizons will provide balance. The idea is to find a group of investors who will help increase trading liquidity in the near term so that larger, long-only funds that are more risk-averse will be able to look at the stock in the future.

Mix and match to meet targeting goals

Companies are not limited to taking just one targeting approach every quarter. IR teams feeling stuck refreshing the same list over and over in the hopes of netting a meeting may want to consider adding additional strategies to the quarterly repertoire. This means trying several sets of targets at once: current, aspirational, and bridge investors. Or consider other aspects such as near-term catalysts, milestones, peer landscape, or new geographies. With the right combination of creativity and objectivity, the possibilities can be endless.

Need help understanding your investment profile or generate new targeting strategies? Reach out to the strategic communications experts at Riveron for a comprehensive third-party assessment to drive investor engagement.

Sources: U.S. Fund Flows: Investors Bail in 2022, 7 Charts on U.S. Fund Flows in the First Half of 2023