October 18, 2019
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Across Instinctif Partners’ Financial Services team, we are always keeping an eye on the key developments taking place across the sector to evaluate their impact on the many businesses we work with. Here we share our picks of the week’s most interesting news, and our expert views.
Employees persuaded to transfer out of valuable pensions
One in ten FTSE 350 companies have reportedly offered employees transfers out of their traditional pension schemes according to a study by Barnett Waddingham, causing their pension deficits to fall by an estimated £2.5 billion. Transfers bear certain controversy as they encourage employees to trade a guaranteed life-long pensions wage for an upfront lump sum. Rock-bottom gilt yields have increased the value of pension transfers – with lump sum amounts of over 30 times a traditional expected pensions income. (From The Times, 14 October 2019)
British firms lead the automation charge
UK financial services firms are introducing robo-advisers into their operations to edge out global competition. A report published by PwC shows that 37% of British financial services firms have already integrated robotic processing automation, while global firms are adopting the technology at a slower rate, with only 28% using robo-advisers. The increasingly pervasive implementation of automation is posing a challenge for firms, who must learn to balance human interaction with the digital perks customers have grown accustomed to. (From City A.M., 14 October 2019)
Mifid II corrodes analyst research
Listed companies have seen a decline in both the quality and quantity of analyst research as a result of new European regulations – known as Mifid ll – which were introduced early last year. The regulation requires that brokers charge asset managers with separate fees for trading and research services. As a result, smaller listed companies may “drop off the radar” of larger institutional investors. 52% of British companies have noted a consistent decline in the number of analysts who provide coverage on them, in addition to 38% who reported a drop in quality of the research produced by sell-side analysts. (From The Times, 14 October 2019)
Private equity firms back smaller transactions
Affluent private equity firms are increasingly investing in smaller transactions after seeing several big deals collapse as a result of record high equity markets and increasing competition for high-quality assets. Investments have soared to $1bn this year as both US and European private equity firms have successfully adopted “buy and build” strategies, where firms acquire and integrate several smaller firms within a sector, to then exit either through a listing or sale. (From Financial Times, 13 October 2019)
Residential Mortgage Backed Securities: the comeback
Data shows that Residential Mortgage Backed Securities (RMBS) – the instruments behind the 2008 financial crisis – are resurfacing as the “most popular products” for investments, as global banks earned $1bn in profits in the first half of 2019 from trading them. Earlier this year, the U.S. Federal Reserve introduced a dovish interest rate policy, which caused demand to sky-rocket for packaged-up home loans among investors. Trading RBMS is not without risk: banks that trade these securities could see their value plummet if the Federal Reserve changes its policies. (From Reuters, 15 October 2019)
Company reporting today – tips from leading editors
The Instinctif team recently attended a breakfast briefing hosted by Roxhill with Tom Braithwaite, companies editor of the Financial Times and Keith Weir, chief desk editor at Reuters. Both senior editors were discussing company reporting and offered some insight into how they run their desks and how best to engage the publications, as both public companies and private firms.
The editors discussed how, while companies news desks work 24/7 around the world, here in London from 7am until 9am it’s an arms race to get the best company stories up, fast. They admitted that their morning is dictated by RNS, but they are looking for good private company news also. They recommend that reporters are briefed in advance if private company news is coming to be sure they are educated and prepared amidst the chaos of the early morning rush.
They also noted how the market is still the best news editor – they are always looking for stories that explain share price movement, as well as company stories that play into international trends.
For publications today, metrics are everything and the FT and Reuters are both are slaves to clicks and spend a lot of time looking at how long a story is read for. Their metrics have told them that short and interesting news pieces are most popular first thing, with beat reporters taking time for a follow-up longer story that digs a little deeper, which is equally popular with lunchtime readers.
The editors shared some insight into what they are looking for from those hoping to be a part of their conversations. The best time to engage fast-moving companies news desks is around 10am when the initial rush has passed. They are always looking for expert commentary and insight and suggested sending notes before 9am to help develop the news for later in the day.
The editors were also equally critical of some of the worst PR practices. They implored us to give them commentators who “can speak like a human” and has something interesting to say that’ll move the story forward. They asked us to “kick out the corporate jargon” and go beyond press releases. They noted that media relationships are most effective when communications professionals take time to get to know beat reporters, give them background and invite them to briefings to help the reporter better understand the business and the sector.
They admitted that in today’s fast moving, digitally led world, there isn’t enough time and space to properly cover small public firms, and even bigger private firms. But both publications are trying to cover them more. The key to pique their interest is to not over-exaggerate stories on small firms. Instead, be realistic, and show how a company’s story fits in the wider market and how it might affect big firms’ business.
Overall the editors were clear that PRs need to understand how they work and what pressures they are under. But, if you can do that, they are very open to hearing about companies of any size, public or private.