For most fund managers, company research doesn’t stop when they reach the end of an analyst’s notes. As clients demand rigorous due diligence, managers strive for direct communication with company leaders. Corporate access — provided through conferences, nondeal road shows, one-on-one and small group meetings — has traditionally been bundled under sell-side brokerages’ research offerings, which clients pay for through trading commissions. However, regulators in Europe have been more closely scrutinizing these payments.
Back in December 2014 the European Securities and Markets Authority published technical advice on the European Commission’s second Markets in Financial Instruments Directive, with recommendations for regulating trading. In an effort to promote greater transparency, MiFID II, as it is known, includes proposals to unbundle payments for investment research from dealing commissions. Since corporate access has traditionally fallen under the umbrella of research, anxiety mounts as brokerages and fund managers wait to see where the regulations — currently scheduled to take effect in January — land on corporate access and research.
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“The role of corporate access in MiFID II is not yet 100 percent clear,” says Dawn Singleton, head of European corporate access at Deutsche Bank in London. “What is clear though is that corporates still do want to meet with key shareholders and investors.”
Which firms do the best job of arranging such get-togethers? To find out, Institutional Investor asks money managers that vote in the All-Europe Research Team survey to indicate which brokerages excel at setting up meetings with the region’s top executives. This year we received responses from 969 investors at nearly 500 institutions that collectively manage an estimated $4.5 trillion in European equities.
Leading this year’s iteration of Europe’s Top Corporate Access Providers is Bank of America Merrill Lynch, which rises from second place after adding one team position, bringing its total to 25. UBS follows an identical path, up one rung after picking up one spot; it’s now No. 2, with a total of 23 positions. J.P. Morgan Cazenove also advances one level, to third place, even though its total holds steady at 20, its advance propelled by losses sustained by last year’s winner, Deutsche Bank. The German financial services firm falls to fourth place after losing nearly a quarter of its positions, leaving it with 19. Morgan Stanley, which shared the No. 4 spot with J.P. Morgan Cazenove last year, slips to fifth place after its total declines by three, to 17.
Click on the Leaders in the navigation table at right to view the full list of 16 firms that earn a spot on this year’s roster, including two entities that didn’t appear last year: Jefferies International and Société Générale.
The increased scrutiny on corporate access payments is nothing new for sell-siders with clients in the U.K. Two years ago that nation’s Financial Conduct Authority passed regulations prohibiting the buy-side firms it oversees from using dealing commissions to cover the costs associated with arranging for corporate access. According to FCA estimates, these costs accounted for nearly £500 million ($770 million) of the total £3 billion collected in commissions in 2012.
“Most of the major sell-side firms are working with clients affected by the original FCA rules on unbundling,” says Simon Greenwell, director of Europe, Middle East and Africa research at Bank of America Merrill Lynch in London. “I think everybody is coming to terms with the more rigorous, transparent reporting process.” The FCA now requires fund managers to submit separate payments for corporate access, whether they are funded through client research accounts or the investor’s own pocket.
While many sell-siders have feared that less money will be available for corporate access and research, Greenwell notes that demand rages on. One of BofA Merrill’s most popular events is its annual Banking & Insurance Conference; last year’s was held in late September in London and drew more than 1,200 investors eager to meet over 130 corporate officials — 70 percent of whom were CEOs, he reports.
UBS has been increasing the number of events it sponsors, according to Pilar Rocafort, London-based head of EMEA corporate access and consumer specialist sales.
“Clients always want to see company managements to see how the company is thinking about its strategy and how the trends in the sector are changing,” she explains.
The bank’s flagship event for the region is the UBS European Conference in November in London. Over two days UBS hosts two tracks of thematic panels on Europe, emerging markets, innovation, growth and macro financials, and covering such key issues as financial technology in the U.K., income inequality, cybersecurity and health care. The firm also hosts interviews with participating CEOs and CFOs in a fireside-chat format. On average, some 100 companies are represented each year, with a strong showing from the C-suite, Rocafort says.
Clients are most enamored by UBS’s trips and events that revolve around a hot investing theme, like Britain exiting the European Union, health trends or the ailing energy sector, she notes. These junkets include meeting with leading industry chiefs as well as third-party experts. “It gives them an additional angle to what they hear from companies, to form an investment thesis,” she says.
Since the introduction of the FCA regulations and MiFID II proposals, many brokerages have taken steps to add value to their corporate access offerings by guiding meetings and events with their own research insights. “The most important thing about corporate access is the provision of the research services around that access,” says Jonathan Jayarajan, deputy head of EMEA company research at Deutsche Bank in London. “Our customers engage with our analysts, look at our models and are prepared with research on the company.”
Some of the hottest days on Deutsche Bank’s calendar are its Global Consumer Conference in Paris and German Corporate Conference in Berlin – both held in June, he points out.
Although the MiFID II final regulations are unknown — they are due later this year, but there is already talk of a possible delay, and nothing like the FCA rules is expected to gain traction outside Europe — relationships between the buy and sell sides are already changing. “The one thing that I’m convinced is going to happen is there will be much greater scrutiny and much more demand in terms of record keeping of what you’re paying for and why you’re paying for it,” says BofA Merrill’s Greenwell. “I don’t think that’ll just be for European managers. I think it’s a global phenomenon.”
