The world of Investor Relations (IR) has always straddled the shared links between companies, stock markets, and the average investor to varied success. It is a weird analogy but IR professionals are much like therapists; commanding a specific mix of tools to help achieve specific goals. A lot of the time, that goal is managing the uneasy relationship between investment and market values.
But “uneasy marriages” do not last that long anymore, even with therapy. Changing market forces and broader regulation are adding a burden to the already difficult role of the IR professional.
Technology is playing a substantial role, as well as numerous ESG considerations, in the market’s ability to process information and act predictably. This, more than ever, is making it harder to retain investor trust and guarantee effective results for all.
With the mechanics of investor engagement constantly in a state of flux, IROs have the opportunity to evolve into sturdy conduits for profitable engagement. There is an apparent need for transparency, and there are more pieces on the board clamoring for it. The stakes are higher and the risks are mounting.
There can be no question that the modern investor is a different animal. You know, the type that’s millennial in spirit (if not in age), tech-savvy, engaging, easily confident in 2nd hand information, and requiring the kind of certainty only digital technology can deliver.
The modern investor is distrustful and aware, whether of tectonic shifts in financial markets or of mild swings in new investment trends. According to 90% of financial advisors polled in this survey, today’s investors are better engaged and more informed about investment options than in the last 5-10 years.
This perhaps explains the index uptick in passive investments. Modern investors are eliminating proxies, thus cutting out active management. Common investor types are increasingly the average Tom, Diana, and Harry, with no help.
About 45% of U.S. equity mutual fund and ETF assets under management (up from -5% in 1995) is owed to passive investments, and active management accounts barely make up 10% of equity trading volume. This is aided in part by a new prevalence of digital financial/portfolio management tools that allow do-it-yourself investments, in real-time.
Indicators also show a growing demand for Environmental, Social, and Governance (ESG) disclosures. In fact, investment strategies that prioritize ESG factors are the trend and ultimately responsible for, according to some estimates, a 200% increase of ESG assets in the US in the last decade alone.
Around the world, ESG assets under management now amount to more than $30 trillion. This alone does its part to drive a corresponding surge in shareholder activism, another defining characteristic of the modern investor
The questions persist: How will modern Investor relations adapt and broaden? What function will IR mavens play in the future?
Investor relations will remain an extremely intricate activity. Chiefly because they are increasingly complex and target a wider and more demanding audience. But also because they now require greater interaction with that increasingly populated playing field— from traditional analysts, directors, brokers, investors, investment bankers, to digital entities, brokers, and managers.
The potential for greater regulation will make this harder, and disclosure requirements could land companies in greater trouble in the event of violation. Communication will also need to be extensive and versatile enough to not only reach but importantly convince.
There are many other trends that look set to last long into the future. One trend is the mounting reliance on equity funding mixed with M&A growth strategy. This occurs at the expense of public markets and is driving a verifiable decline in how many public companies there are.
With the volatility in markets and the popularity of crowdfunding mechanisms, a marked increase cannot also be ruled out. Nearly two-thirds of NIRI survey respondents were in agreement that the number of publicly traded companies will either decrease or decrease dramatically over the next 10 years.
There’s also the transition to algorithmic (automated) trading and the increasing adoption of AI. Computer models are becoming the go-to in trading, executing extraordinary volumes at high speeds. Data Analytics and AI are fast becoming veritable tools for exponential and breakthrough growth.
As this leaning to automation increases, it remains to be seen what roles IR professionals will play. As well as how Investor relations will respond, evolving its historical use of data to create compelling messages for stakeholders and investors.
As things unfold, Investor Relations must undergo an expansion of knowledge and competencies. A consolidation of functions is very likely, to leverage efficiencies and maintain alignment.
The future IR professional must also inhabit a potent mix of business and financial acumen, modeling and analytic skills, public relations, and communications. The IR professionals of the future will be valued by corporate managements across board not only for the market insight and feedback that they bring to the table but also the macro-level perspectives and ‘world view’ that they help entrench in business.
The intersection of investor relations, public relations, communications, and financial acumen looks to be very vital in the years ahead. Especially as IROs look set to play greater roles in C-Suites.
Public relations will be especially pivotal; as increased sell-side focus on balance sheets and increased buy-side activism make for an explosive brew. The ability to represent and publish memorable messages that re-assure investors is critical to euphemizing any out-of-control situation. As ESG becomes mainstream, IR professionals have the opportunity to be front and center in the terse struggle for shareholder v stakeholder primacy.
Given the varied pathways into an IR career, there is a need for a body of knowledge including a deep understanding of listing rules. IR teams must remain abreast of trends, with a commensurate requirement to undertake ongoing professional development to provide best practice investor relations and cement IR’s future as an important corporate discipline.
The core of the IR role will likely remain the clear communication to, and engagement with, listed entities and the market to ensure the fair value of the company’s securities.
IR’s role as a key adviser to the executive is likely to continue to grow, which will underscore a need for a more formal certification system and continuing professional development. Technology may drive change in IR into the future, and it is important for IROs to know what investors are using and how it affects their investment decisions.
Although technology will present plenty of opportunity for IROs in support of their roles – it will require investment, and will not replace meeting face-to-face and valuable human insight.
If recent trends persist, the investor base might become more fragmented and corporate governance will remain a focus. Changes around the growth of ESG investment and reporting are set to have a major impact on the demands of IR teams.
It will be essential for IROs and listed entities to understand the changing ESG requirements of the fragmented market. Ongoing discussion, education, and structure will be required to keep up to speed.
We are looking for a Vice President, Investor Relations to join our leadership team. The VP, IR will report to the Chief Financial Officer and will work across the organization to build an outstanding investor relations function. This is much more than a tactical corporate access role; we are looking for an IR executive who can operate in a highly strategic fashion and who can be an inspiring leader. In addition to being a dynamic IR professional, candidates for this role should have a deep understanding of finance, outstanding business acumen, and strong interpersonal skills, both verbal and written.
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