The Autocorrect - Sell-side Research Distribution and Divestment
Week Ending 20 September

Hopefully you made it through conference season with your carry-on bag intact and your tablet battery still holding a charge…leaving quiet period just around the corner. (Exhale). The Autocorrect’s headline topics change up again this week to look at sell-side research distribution, and we also follow up on the single most intriguing story from August with a little of our own in-house data.

Here’s the latest news from the IR world.


- The next call you get from your research analyst might not be looking to set up an intro for your CFO to a new long-only shop…it might involve seeking an intro to your corporate strategy team. The FT covers the move from major brokers to offer their research services directly to corporates, quoting research leads from Morgan Stanley, Goldman Sachs, and JPMorgan in describing their capabilities. For example, JPMorgan offers a new research product called JPMorgan perspectives that is “more thematic and targeted at a general corporate readership.” There’s no natural sales organization beyond the investment banking units to sell research work into corporates, but especially when it comes to sector expertise, brokers may have a unique viewpoint as well as access to data and analytical tools that have value in your organization. Keep an eye out for these inbounds as you speak with your coverage teams.

- This piece is not meant for you. It’s written by Will Richards of the Research Alliance, a consultancy for independent equity research providers – who are facing a particularly tough period in the face of MiFID and the disruption in buy-side research. While you might expect that indies have a better opportunity to level the playing field against the traditional brokers in terms of quality of research, most surveys haven’t shown any shift toward actual spend on independents. The reality is that while the tenth page of a piece of independent industry research might be better than the tenth page of the corresponding broker report, the odds of that tenth page reaching the right decision-maker at the right firm at the right time to drive an investment decision are far smaller.

Or, maybe this piece is meant for you – in that you’re probably aware of the firms and well-connected analysts doing good quality independent research in your sector, and you might’ve seen some of your better broker/dealer analysts go independent over time as well. You may be one of their best distribution channels – no, don’t send research reports to investors, you don’t want to be seen as affirming the contents of any of those reports. But, if you know there are independent analysts that get your story, or get your market, mentioning their names along with other sell-side analysts who know your stock best can be helpful for investors trying to get better acquainted with your business. 

IR Best Practices 

- We last checked in with the Overstock saga in early August, when CEO Patrick Byrne had announced that the company would pay a special dividend of a new “digital token” share class, which would require short sellers to either cover their positions or otherwise acquire the token share class…and reminded readers that, hey, if you want to drive out short sellers, that’s one way to do it. This story has gotten progressively more interesting over the last several weeks, and we don’t have the space to do it justice here, so we’ll simply point you to Marketwatch or Bloomberg’s take on the story, and, well, leave it there.

However, for us market watchers, it has given us an interesting case study on the short side of the equity market and its vulnerability to disruption. Sam Pierson of IHS Markit’s Markit Securities Finance group noted that the transaction announcement did create a sudden drop in shares on loan over the week, with a 3.2mm share reduction in shares on loan since September 6th, leaving 10.6mm shares on loan. However, the interesting part is that even with the sharp decline, borrow costs continued to drift higher, and even after the short covering, OSTK remains one of the most expensive-to-borrow US equities overall. There are media reports that lending desks are accepting cash instead of the new token in return, and it’s entirely possible that regulators will step in and curb future use of this tactic. So, no, don’t try this at home…but it’s worth keeping an eye on not just the long but the short side of the market for your stock too. Inc equity short demand & share price.png

- Does shareholder activism drive long-term shareholder value? The question has been asked around the IR community for years and continues to be a debate amongst experts within the field. On one hand, advocates argue activism unlocks shareholder value through necessary corporate actions such as board/management changes, share buybacks and mergers or acquisitions. Conversely, opponents believe activism impairs a company’s operational performance.

According to University of Washington’s Ed deHaan, Stanford’s David Larcker, and Chicago Booth’s Charles McClure, both opinions are incorrect. In their study, Long-Term Economic Consequences of Hedge Fund Activist Interventions, the authors examined ~2,000 activist campaigns from 1994 to 2011 and concluded that shareholder activism has a negligible effect on operating performance or long-term stock prices. Further, activist campaigns only have a positive correlation on share price for micro-cap companies, with an average market value of $22 million. “Our findings do not strongly support arguments that activist interventions drive long-term wealth for the average investor. At the same time, we find no evidence that activist interventions destroy value, so our findings also fail to support critics’ proposals to restrict activism.” (Matt Esposito)


- Theme for the week in the ESG space is around divestment. Over the last few months we’ve seen a steady drip of press releases from large pension funds announcing they would divest their ownership of particular sectors, largely in the energy space but also expanding into other industries. This week saw the counterpoint to the divestment argument hit home. Bill Gates, in an interview with the FT, suggested that divestment has “zero” climate impact, and suggested that allocating investments to green energy ventures would have a far more beneficial impact. Separately, P&I collected several riffs on the theme of large asset owners reviewing divestment as a strategy and finding no benefit from an investment perspective. CalSTRS, CalPERS, and GPIF representatives are cited in the piece noting that divestment not only hurts returns, but also ends any future opportunities to engage with companies to advocate for change. It shouldn’t come as news to anyone that highlighting any “green revenue” story that may exist in your business or in your value chain is important – tack on the assets of the organizations above as additional reasons for you to spend the time isolating and telling that story.

Questions? Comments? Taking the relocation deal and moving to Miami with Carl Icahn? Reach out to your IHS Markit team, or