The Investing with the Buyside
podcast: Corporate access for the masses
Sep 21, 2018
Nate Abercrombie’s podcast
series seeks to bring senior management to all
A former buy-sider, Nate Abercrombie saw his research
budget slashed and ‘was personally told not to expect any one-on-one
management meetings’ following the introduction of
Mifid II. In a bid to make
corporate access more democratic, he launched his podcast,
Investing with the Buyside –
or the IwtB Podcast for short – which brings in-depth interviews with
senior management to the masses. Here he talks problems in the
midstream sector, getting management’s message out and Mifid II.
Nate Abercrombie, host of the
Investing with the Buyside podcast
What prompted your move from the buy side into the
world of podcasts?
It was during one of the last sell-side conferences I
attended as a buy-side analyst that I fully realized the need to
democratize corporate access – not just for institutional money
management firms, but also for the broader investment community.
In late 2017 at a midstream conference in Dallas, I had
the opportunity to sit down and talk to various midstream management
teams about the outlook for their companies and the industry. The
price of crude oil was up moderately since the start of the year, the
majority of midstream distribution cuts were behind us, and numerous
midstream companies had laid the foundations to stabilize the business
model. But the capital markets still weren’t biting, and the sector
failed to attract much investor capital.
The energy sector in general, and the midstream sector
in particular, had massively underperformed the broader market over
just about every time period since the commodity price collapse of
2014. In 2017, industry fundamentals had improved substantially but
headwinds specific to the industry more than overshadowed the positive
developments. While those of us who followed the space closely might
have argued that concerns were overblown, that didn’t matter much.
There were – and continue to be – a lot of factors that hamper the
appreciation of equity values of many companies and sectors, not just
midstream. In my opinion, broader dissemination of information,
especially management’s message, is first and foremost among those
I often ask myself whether the underperformance of the
midstream sector is justified – not only when I was an energy sector
analyst at a large mutual fund company, but also as an individual who
is now disproportionately invested in midstream. Throughout 2017
almost no management team I met with at investor events seemed to
think so. Indeed, the sector’s poor performance dumbfounded many
management teams. But those same teams also admitted that the industry
faced several hurdles in attracting investor capital.
What are some of the problems the midstream industry
The first problem stemmed from the distribution cuts
over the previous two years. Midstream had long been viewed as an
income sector, one in which financial advisers and retail investors
parked their capital with the expectation that the return on capital
would help supplement retiree incomes and provide passive income to
When midstream companies began cutting their dividends,
financial advisers and retail investors fled the space. That’s
important to note because the midstream investor base was
overwhelmingly retail at the time. Some market observers have
indicated that at the peak, retail investors owned more than three
quarters of the shares or units of midstream/master limited
partnership (MLP) companies.
Another problem for the industry was that the midstream
sector was incorrectly viewed by many as having very little commodity
price exposure. While it’s true that many midstream companies have
little or no direct commodity price exposure, the indirect exposure
was significant: if commodity prices decline below a certain level,
producer volumes will eventually fall, resulting in lower midstream
revenues from fewer ‘toll’ fees, which ultimately impairs a midstream
company’s ability to maintain its dividend.
But the most significant obstacle for the midstream
sector is the funding model. Until recently, most midstream companies
funded growth projects by issuing almost equal amounts of debt and
equity. As most people know, the North American shale boom resulted in
massive oil and gas production growth. That meant there was a
significant need to build new infrastructure to transport the growing
volumes of hydrocarbons to demand centers.
Midstream companies required increasingly large sums of
capital to fund the construction of pipelines, gathering systems and
processing facilities. The funding requirements became so significant
that finding buyers of newly issued shares became increasingly
difficult. Institutional investors participated in secondary
offerings, but the participation was somewhat limited. After the
commodity price collapse of mid-2014 and the distribution cuts that
followed, the retail investor base fled the sector and hasn’t returned
in a meaningful way. Institutional investors, uncertain of the
direction of commodity prices and wary of the MLP corporate structure,
sat on the sidelines and watched the carnage escalate.
One last thing worth mentioning about the sector is
that midstream companies were significantly underrepresented in the
major indexes. The primary reason relates to corporate structure:
numerous indexes, including the S&P, explicitly exclude MLPs from the
list of index candidates. Compounding the problem further was the fact
that the energy sector became a tiny part of various other major
indexes. The mutual fund company I worked for at the time had the
Russell 1000 Growth index as its primary benchmark. Energy, as a
percentage of the total value of the other sectors that made up the
index, went as low as 0.5 percent of the total index!
The relative size of a sector in an index is an
important factor to highlight because many fund managers today are
index-sensitive and many mutual fund investment mandates require an
equal balance of sector exposure. These factors hinder firms like the
one I worked for from taking sector ‘bets’ even though valuations in
that sector may appear extremely attractive.
How did this thinking result in the IwtB Podcast?
It was with this backdrop that I started obsessing over
some of the flaws in the institutional money management business and
began thinking about my next steps. The money manager I worked for
wasn’t structured in a way that would allow it to take advantage of
market dislocations, despite the relative value and compelling
outlook. Midstream’s underrepresentation in indexes meant the sector
was unlikely to benefit from the growth in passive investing.
Moreover, corporate trading restrictions made investment difficult for
those investors that knew the sector best. The appetite for midstream
investing among those institutions with large sums of capital just
The midstream conference I attended late last year was
the straw that broke the camel’s back. Listening to midstream
management teams talk about constructive industry fundamentals,
shored-up balance sheets, large coverage ratios and the new
self-funding approach for financing growth, I realized there was an
inherent need for broader distribution of management’s message. I
Investing with the Buyside
primarily for that reason, but there were other reasons as well. The
firm I worked for had recently merged with a European mutual fund
company, which provided a lot of insight into what the ultimate
implications were from the implementation of Mifid II. Research
budgets were being slashed – mine by more than 60 percent – and I was
personally told not to expect any one-on-one management meetings going
How did you see Mifid II potentially impacting your
Mifid II was going to make my job as an equity
researcher a lot more difficult. More importantly, I believed the
opportunities for corporate management to provide the capital markets
with their company’s investment story would shrink, at least through
the traditional corporate access channels. The IwtB Podcast was thus
established to fill the void and provide management teams with a
platform to connect with potential investors of all types:
institutional, hedge funds, advisers and retail.
What have been some of the main challenges you’ve faced
in getting senior management onto the podcast?
The main challenges have been podcast awareness, name
recognition/reputation and the lack of awareness that there are
significant changes to corporate access as a result of Mifid II.
Even though podcasting has been around since the early
2000s, there are still a lot of folks who don’t know what they are and
how to find them. Most of the success in securing interviews has been
in working with the younger generation of IROs who are more familiar
with podcasts and are willing to experiment with new forms of media to
get the company’s message out. Name recognition is something every new
business must deal with, but it’s probably a more acute issue in an
industry where well-known investment banks have traditionally provided
this service. Additionally, it’s been difficult to get management
teams outside of the companies and sectors I covered as a buy-side
analyst because they’ve never seen my name before. Connections go a
long way in this industry.
Lastly, most companies do not currently see the need
for more exposure because they believe their corporate access needs
are being met by the sell side. Many of the IROs I’ve spoken to,
despite politely declining an invitation for an interview, have been
eager to hear my perspective on how Mifid II is changing the dynamics
of corporate access for the buy side. As a podcaster, my goal is to
provide interesting and valuable information to investors, but I also
spend quite a bit of time trying to help IROs understand the
far-reaching implications of Mifid II and how it’s changing corporate
access in the US. Fortunately, there are reputable resources like
IR Magazine that I can point to in getting the message across.
Having hosted IwtB for six months now, where do you see
corporate access heading in a post-Mifid II world, and what could IROs
be doing to help management get the message out?
I recently attended a NIRI dinner on Mifid II that was
centered around corporate access in the US. While US-based asset
managers are not currently subject to the regulations, I was surprised
to learn that many of the larger institutional money managers have
already started adopting various rules laid out in Mifid II. Right
now, it’s difficult to say what the long-term implications of Mifid II
in the US will be, but what is clear is that the genie is out of the
bottle and the clients of institutional money managers are pushing for
greater fee transparency. And based on what I’m hearing from IROs in
the US, there is a serious need for more information, guidance and
resources for the IR community to understand how to navigate the
It’s my personal view that IROs will need to be much
more proactive when it comes to scheduling and co-ordinating meetings,
especially with prospective shareholders. That means relying less on
the sell side, developing and improving in-house IR capabilities and
looking to third-party vendors to help connect with potential buyers.
I also think these imperatives are particularly important for IROs of
small to micro-cap companies given the shrinking ranks of sell-side
analysts and increased focus on larger-cap companies.
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