Ackman Targeted By Activist, and Analyst Trade Ideas
Week Ending 19 July

No central theme during this first major week of earnings season so we’ll simply save you the time of reading an intro. However, since it’s so hot where you are right now, maybe this is a good time to pre-emptively let your mother know that yes, you’re inside, and yes, you’re staying hydrated, and no, during earnings season it’s dark during your commute home so you don’t have to wear suntan lotion. (Don’t talk about earnings season to her though. Not a good use of your time or hers.)

Here’s the latest news in the IR world.

Buy Side

- For those who thought activists are always on the offensive – we submit the following story: Bill Ackman has been targeted by an activist. This Bloomberg piece covers the campaign by Asset Value Investors Ltd., a 3% holder of Ackman’s London-listed investment company Pershing Square Holdings, publicly opposing Pershing Square’s new debt issuance program and encouraging the company to conduct a large share buyback. PSH shares are trading 26% below their 2014 IPO price and at a 30% discount to NAV, and the new debt issuance would contain covenants that would limit the company’s flexibility to add further leverage to benefit shareholders – hence the opposition from AVI. No, we don’t have the usual “actionable” IR takeaway here…but we don’t think we need one; this story stands on its own.

- This Deloitte piece serves as a coda to our 21 June highlight of Nelson Peltz’s campaign to improve operations at Legg Mason, which has grown by acquisition over the years. Deloitte’s unit Casey Quirk spend some time looking at M&A combinations between asset managers. The authors point out that ripping the bandage off and actually integrating, instead of bolting on, a smaller asset manager into a larger asset manager, pays off in the long run in terms of achieving the cost savings necessary to compete. Full integrations grow net flows twice as fast and maintain profitability levels that are 20% higher according to the study.

We see buy-side merger announcements consistently through our research, and for IR relationships it’s worth noting the likely impact. In a true integration of a buy-side manager with a large stake in your company, your existing position is much more likely to be at risk in the short term. However the investor is likely to be a healthier target investor in the long run. Obviously the converse holds as well – “bolt-ons” keep the existing relationships, but at the risk of a less effective asset manager longer-term, or worse, a target for Nelson Peltz.

IR Best Practices 

- The paper Are Analyst Trade Ideas Valuable?, led by researchers at Ohio State, isolates a data set of “trade ideas” and looks at their impact – research reports that have a specific “tactical” buy/sell call on a shorter-term investment horizon, sometimes in an opposite direction of their rating. These trade ideas have almost twice the stated value to the buy-side of buy/sell recommendations according to a cited buy-side survey, and the researchers show these ideas are associated with monthly alpha of about 90bps (not including transaction costs) on buys, and even larger on sells. Further, researchers prove that institutions using trading data, in particular the clients of the broker issuing the call, do make trades on the information, though a significant impact on volume is only seen on the day of and the day after the recommendation.

So, how to become a positive trade idea? Keep in mind that most brokers intend trading ideas to be short-term (generally 4-8 week periods), so it’s possible that becoming a trade idea only increases short-term churn, so it may not be the most worthwhile goal. Also, as you might guess, the research team points out that trade ideas tend to come from stocks that have produced larger trading commissions for a broker in the past…of course, it’s easier for the analyst to call clients that have traded a particular security and are already familiar with it. However, to lower the barriers for analysts, a trade idea needs a catalyst – and 58% of these trade ideas cite “other firm news” beyond upcoming earnings or conferences. Shaping your story into a catalyst is part and parcel of the IR role – and a good starting point might be reviewing your upcoming releases with your PR team to make these stories fit to themes that can serve as such a catalyst.

- Okay, maybe this doesn’t belong under IR best practices, but according to this WSJ piece we’ve finally found an answer for how to instantly build liquidity in your stock. The Impact of TV Ads on Stock Trading highlights research from Cornell and Hong Kong University of Science & Technology to show the answer to this ages-old conundrum: call up your marketing department, then simply run huge amounts of TV advertising, preferably in prime-time – each dollar of TV advertising spend on average generates a full 40 cents of trading activity in the associated stock!

Well, you said you wanted the answer…it’s not our fault that the ROI doesn’t clear your hurdles. Either way, the researchers point out that both Google searches as well as SEC EDGAR searches for specific companies show increases immediately after TV ads air in relevant regions (based on EST and PST airings), adding to the causal relationship for the increased liquidity. We’re presenting this not entirely facetiously, though, as it does touch on the overlap between the company’s brand and retail investment – there are plenty of consumer companies, in particular, for which the audience is both customer and investor. This research claims that while the value of growing the brand to the market for a stock may not be as easy to quantify, it’s not zero, and impact of influencing that audience may be found in more than just new product sales.


- The House Financial Services Committee saw plenty of ESG action over the last ten days, with hearings on broad ESG disclosures as well as a bill approved by the committee specifically on climate change disclosure. A good wrap of the ESG hearing from Davis Polk is here – and speaks to draft legislation from Rep. Juan Vargas. Separately, H.R. 3623, the Climate Risk Disclosure Act, passed the committee on a party line vote, so we wouldn’t give it an overwhelming chance of passage (one of our favorite statistics is GovTrack / Skopos Labs’ “likelihood of passage” stat, which currently rests at 4% for this bill) – but the fact that policy writers are spending time on this means it won’t be the last time the topic comes up.

- Over the past few years at the urging of the asset management community, public companies have pushed to create more diverse boardrooms, with some publicly supporting diversifying the executive suite as well. However, outside of the public company asset managers, we haven’t necessarily seen the reverse, in any clear push for diversity within the investment management community. Here’s a Chief Investment Officer article looking at a bill introduced in Congress that would require asset owners issuing RFP’s to consider minority and women-owned firms in every competitive process. Yes, as above, this is Congress, so we certainly aren’t handicapping the likelihood of passage, but this is the first time we’ve seen public pressure on the asset management community in this direction. There are academic studies like this and this that continue to show women and minorities are underrepresented in the asset management community, but over-represented among strong performers – perhaps the buy-side won’t need Congress to help it diversify, just a desire from asset owners to work with great managers.

Questions? Comments? #REF!? #VALUE!? Reach out to your IHS Markit team, or