WALL STREET JOURNAL.
Giant Investors Are Coming After One of Wall Street’s Cash Cows
Fidelity, T. Rowe, Wellington, others collaborating to meet
corporate CEOs without bank handlers
Fidelity Investments and other firms are planning a series of
private conferences where their analysts can meet CEOs. PHOTO:
GO NAKAMURA FOR THE WALL STREET JOURNAL
Liz Hoffman and Geoffrey Rogow
June 26, 2019 9:33 am ET
Wall Street’s role as matchmaker between big money
managers and corporate executives is under threat.
Next year, five large investing
firms overseeing more than $7 trillion are banding together to directly organize
a series of meetings with company executives, according to people familiar with
the matter. The first meeting, set for Boston next spring, will host executives
of consumer-staples companies.
The existence of the meetings is a
direct threat to the hundreds of millions of dollars in fees banks make each
year introducing their investor clients to the managers in whose companies they
own stock. Fund managers pack into hotel ballrooms to hear presentations and
take guided tours of company factories. A one-on-one meeting with a chief
executive can run $50,000 or more in some cases.
Now, some of the biggest managers
are planning to go it alone. No banks needed, or even invited.
Fidelity Investments, Capital Group,
Wellington Management, T.
Rowe Price Group Inc.
and Norway’s government fund are planning a series
of private conferences where their analysts can meet CEOs, according to people
familiar with the matter. The agenda: cocktails and dinner, followed by a full
day of one-on-one meetings, 75 minutes each. CEOs only.
“We plan to partner on corporate
access events and conferences that will provide a tailored research experience
for our investors,” a spokeswoman for T. Rowe said.
The workaround is just the latest
way that banks are losing their spots as Wall Street’s indispensable middlemen.
They once underwrote loans, stood in between buyers and sellers of securities,
and organized meetings between investors and corporate executives—all for hefty
Today, companies are increasingly borrowing
straight from loan funds, without hiring a bank to underwrite and
place the debt. Online platforms allow investors to trade directly with each
other, sidestepping a bank’s trader. Solo advisers help
companies design complex derivatives for a fraction of what Goldman
Sachs Group Inc. or JPMorgan
Chase & Co. would charge.
Corporate access is one of the few
cash cows left for banks and their research departments. Greenwich Associates
estimates that corporate access was worth $900 million to banks last year, about
12% of their total equities revenues. It can also spur trading revenue and draw
corporate clients closer.
The average big U.S. company sent
executives to six investor conferences and on five roadshows in 2017, where they
typically met with investors curated by a bank research department, according to
data provider IHS
Chief executives get the chance to
tell their stories to sometimes skeptical audiences and soften up the ground for
shifts in direction. These meetings are generally unrecorded, with analysts
taking notes that they may later disseminate, in edited form, to other clients.
one-on-one meeting with a chief executive can run $50,000 or more in some
Executives are forbidden from
sharing nonpublic information at closed meetings, but investors focus
on their body language and parse their words in the hopes of picking
up a useful nugget or two. A 2011 study found that fund managers who took
corporate meetings made more money than peers who didn’t.
The practice traces to 2003, when
Wall Street securities firms paid $1.4 billion to settle allegations that they
routinely issued overly optimistic stock research to flatter corporate clients
and win their investment-banking business. Regulators forced banks to wall-off
their research departments from their dealmakers.
So analysts turned to the access
business, finding another way to profit from their ties to big companies. In the
year following the settlement, at
least eight firms set up dedicated units to arrange intimate meetings
between investors and corporate brass. Some charged fees for entry; others
sought to curry favor with funds that might send more trades their way.
Banks have been relying more on that
business recently as trading commissions have dwindled and a shift to passive,
indexed investing has hit banks’ trading desks hard. The dense financial reports
their analysts produce are less relevant as computer-driven “quants” and index
funds displace traditional stock-pickers.
Consulting firm Oliver Wyman expects
banks to lose as much as $3 billion as asset managers cut back on research
spending. Charging for corporate meetings helps compensate. Investment banks are
now required by new regulation that began in Europe to tell their clients how
much they are charging them for research, rather than bundling its cost in with
But their asset-manager clients are
similarly under pressure. The race toward low-fee funds pioneered by Vanguard
Group and BlackRock Inc.
notably absent from this latest effort—has forced rivals to slash costs, cut
jobs and even move their corporate headquarters to cheaper locations.
As ownership has become more
concentrated in the hands of a few asset managers, some investors question the
need to have banks in the middle at all. Just four firms—BlackRock, Vanguard,
Fidelity and State
Street Corp. —
were the largest shareholders in nearly 90% of the companies listed in the S&P
500 at the beginning of 2018, according to Brookings Institution.
The conference being organized by
the five firms could threaten popular conferences hosted by banks including Barclays PLC
of America Corp. The
latter’s is historically held in March, around the time Fidelity, T. Rowe and
the others will gather in Boston.
Write to Liz
Hoffman at firstname.lastname@example.org and
Geoffrey Rogow at email@example.com