Corporate access

If you are trying to decide whether to buy the stock of some company, one thing you could do is sit down with its chief executive officer and ask her: “Should I buy your stock?” This probably won’t be too informative: For reasons of incentives (her wealth is tied to the stock price) and general CEO optimism/confidence, she will almost certainly say yes.[1] But you can ask follow-up questions. If you say “okay, you think I should buy your stock, does that mean that you will have a good profit next quarter,” and she says “no,” or “define good,” or “oh look at the time I gotta go,” or if she says “yes absolutely” but starts sweating and looking around nervously, then perhaps those are useful indications that you should not buy the stock. And if she looks you in the eye and says firmly “it’s gonna be amazing,” go ahead and buy it.

This is a little bit fanciful, but not that fanciful. CEOs do regularly meet with investors, and the investors ask questions and the CEOs answer them. In the US, securities regulations prohibit the CEOs from disclosing material nonpublic information in these meetings, so in theory, if you ask the CEO about next quarter’s earnings, she shouldn’t tell you anything the company hasn’t already said publicly. In practice, though, these meetings do happen, which suggests that investors get some value out of them. And empirical studies find that, as you’d expect, investors who have meetings with CEOs make more informed investing decisions. They’re definitely learning something in the meetings.

The polite way to reconcile these facts — the CEO isn’t allowed to give investors material nonpublic information, but the investors do get useful information out of these meetings — is to talk about “tone and body language.”[2] Like, I guess, you ask “will earnings be good next quarter,” and the CEO says “of course I can’t tell you anything beyond what we have publicly disclosed,” and she winks, so you buy the stock. Or she says it in a gloomy voice so you sell the stock. I assume that this is almost entirely euphemistic,[3] and what actually happens is that you ask good granular questions about the company’s operations and finances, and the CEO thinks “well this is not the sort of material nonpublic information that I am not allowed to disclose” and answers your questions, and you come away with a better understanding of the company’s prospects and a more informed investment thesis. The CEO gives you information that is useful and new, but somehow not material and nonpublic.

So it’s entirely understandable that you would want to meet with the CEO: She can tell you things that are useful in making your investment decision. But why would she want to meet with you? I think there’s a cluster of related answers:

• For incentive reasons (her wealth is tied to the stock price), she wants you to buy the stock, and for general CEO optimism/confidence reasons, she thinks she will be a good salesperson for the stock.

• For corporate finance reasons, she wants you to want to buy the stock, in case the company needs to raise money by selling stock.

• For fiduciary reasons, she wants to meet with the owners of her company’s stock, because they are the owners of the company and she works for them. So if you are currently a stockholder, you’re her boss and she’ll make time for you, and she’ll extend the same courtesy to people who are considering buying stock.

• For governance reasons, she knows that it is useful to her to have the support of her shareholders. So she will want to be helpful to you, so you will do things like vote to approve her compensation package or support her in a proxy fight.

But she’s pretty busy, and there are a lot of shareholders, and she probably can’t meet with everyone. She will need to prioritize, and those answers give you a sense of whom she should prioritize:

• She should meet with investors who are likely to buy a lot of stock, and not with investors who aren’t, or who might short the stock.

• She should meet with big owners of the stock, not investors who only own a little, or none, or are short.

• She should meet with big stable owners of the stock, who will still own it in a year when she needs a favor, and who are management-friendly and not likely to do a proxy fight themselves.

Also, like anyone else, she will want these meetings to be pleasant. If you ask friendly questions and are polite, you’re more likely to get a second meeting. If you are rude and slovenly and ask difficult questions and push back on her answers and try too hard to get her to reveal material nonpublic information, she won’t have a good time, and you won’t be invited back.

This all suggests that the CEO will want to meet with analysts and portfolio managers at Fidelity and Capital and Wellington, big long-only asset managers who own large chunks of stock for long periods. She will not want to meet with most retail investors, because they are too small, unless she has a very conscious meme-stock strategy.

But she also may not want to meet with the long/short equity teams at big multimanager hedge funds. Those funds are big and important, but they often have short holding periods, so if she gets them to buy stock today they might sell it in a week. They tend to be market-neutral, and short stocks as well as buying them, so if she meets with them today they might go out and short her stock. And they are in the business of finding edge that no one else has, so they are more likely to ask tough questions and push for detailed information that she is uncomfortable disclosing. They are not good reliable long-term partners for a CEO; they are informed investors looking to do a smart trade.

Also: possibly slovenly? At Business Insider, Bradley Saacks has a fun story about corporate access at big multistrategy hedge funds. For understandable reasons, CEOs used to prefer not to meet with them:

Twenty-seven-year-olds in T-shirts. Cameras off during pandemic-era Zooms. Typing on laptops or phones while CEOs spoke. Twenty people on a call, all vying to ask a hyperspecific question, often related to next quarter's earnings. ...

At bank-held conferences, alongside tenured portfolio managers from long-only funds and asset management giants like Fidelity and Wellington, "we were always the kids' table," one multistrategy executive admitted.

It was "pretty common" between 2018 and 2021 for executives to say no to meeting with some of these firms, or sharply curtailing the number of seats allotted to these funds, said Christopher Melito, a former corporate access pro at Cowen, Citi, and Credit Suisse. Even with how much these firms paid the sell-side, "at the end of the day, a C-suite could say 'don't confirm that request, we aren't meeting with them,'" said Melito, who is now the head of investor access at consulting firm ICR.

But things have improved, at least sartorially:

For example, "a lot of top four funds stopped putting junior members in these meetings," Melito said, and started training younger investment team members on protocol.

One former PM said that at Point72, blazers are required when meeting with an executive. At other large firms, Melito said, young analysts start by meeting with smaller-cap companies before shadowing more senior investors in meetings with large-cap corporations.

Still there are problems. One problem is that, at the big hedge funds, there are a lot of portfolio managers covering similar sectors, so it’s possible for a company to get five different calls asking to schedule meetings with “Citadel,” which is pretty annoying:

One portfolio manager at a large firm said the biggest fights he ever saw were between two teams wanting access to the same executive — and there would only be room for one. Firms often give more tenured teams the right of first refusal for a meeting, but sometimes big-name new hires will jump the line, causing a rift, another PM said. …

In the ongoing war for talent that has top moneymakers getting offers of tens of millions of dollars in total potential compensation, an important question for candidates is how many other teams trade their specialty or sector, one recruiter said.

"It's a make-or-break kind of question," he said. No one wants to be one of 20 investing in technology companies "unless the money's just stupid," he added.

Another problem is: Are these meetings actually useful? Again, as a regulatory matter, they’re not supposed to be, and it’s at least possible that companies have gotten better about not disclosing nonpublic information in meetings with investors:

One European equity investor said CEOs have become more scripted than ever, so meetings are basically a rerun of what they've previously said on earnings calls or at conferences. Another, based in the US, said the biggest value from these meetings used to be a sentiment check on how other teams were thinking about the stock — but now questions are often too specific and narrow to give any kind of indication into their thinking.[4]

But there is always body language:

Tiger Global's billionaire founder, Chase Coleman, sees merit in these meetings and still attends them, a person close to the firm said, and funds have brought in former CIA interrogators to help investors dissect body language and read between the lines of a prepared statement.

Yeah, see, this is why the CEOs prefer meeting with Fidelity?

Hedge fund: Hi, we are considering buying your stock, would you be willing to meet with us?

CEO: Sure I love meeting my investors.

Hedge fund: Great, we’ll set up a meeting. On our side it will be our tech portfolio manager and two analysts.

CEO: Cool, make sure they wear blazers.

Hedge fund: And our CIA interrogator of course.

CEO: Actually I just realized I’m busy that day.

3. Though I do sometimes cite an anecdote about a governance specialist at a big long-only manager who met with the chairman of the board of a public company who was “looking unfeasibly tanned for this time of year.” The asset manager sold a bunch of the company's stock, not *exclusively* because of the chairman's tan (he also gave some bad answers to questions), but the tan was in the analyst’s report. “The company eventually went into insolvency.” A tan is not quite “body language,” but it’s a related concept. View in article

4. That’s a fascinating explanation of the value of corporate access, by the way. Several of the big multimanager funds rigorously compartmentalize their teams, to make sure they are making independent bets: If a fund has two tech teams, they will each have to come up with their own ideas and won’t be allowed to talk to each other. The only time they’ll be in the same room is if the fund sets up a meeting with a tech CEO and lets them both come. So the portfolio managers can learn something material and nonpublic from the meeting, but not *from the CEO*: They can each learn what the other is thinking, which makes their own model of the market a bit better. (Though at the expense of being less independent.) View in article

This column reflects the personal views of the author and does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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