The good news: There are trillions of dollars that are actively managed looking for a good investment idea.
The bad news: At least 10,000 other companies think they are that good idea.
More bad news: If the CEO and CFO are going to spend a wet Wednesday in Cleveland meeting fund managers when they could be running the business, there better be a good reason.
Now that we have gotten our bearings– we need to chart our course. Maybe that’s Cleveland, but maybe not.
There are many programs run by third parties that claim to provide investor targeting. They essentially all rely on two things:
- 13-F data. The investment behavior of some funds can be tracked because they file a Form 13-F. If a fund manages more than $100M domestically they must file this form every quarter, within 45 days of the end of that quarter. On this form is a list of every public company they own and how much they own of it.
- The past is a guide to the future. One way or another these programs look at the stocks each fund owns and do two things – look to see if the fund is buying more or less of a particular stock, and tag each stock with some markers to see if the fund is buying more or less of groups of stocks that have a particular tag in common.
As long as the tagging methodology makes sense (the company tagged “Medical Devices” is actually a medical device company) and the statistical model works well (for example, a model might be set up so that it assumes a fund that has been reducing its exposure to medical devices is less likely to be interested in a new medical device idea than a fund that has been increasing its exposure to medical devices), then these models are very helpful in ‘boiling the ocean” of funds out there down to a smaller number who are more likely to be interested in your company.
You can also do this work yourself and employ some of your own insight rather than relying solely on statistical modeling. 13-F data is available from the SEC and is aggregated by a number of databases. You can download this data at no charge and do some of your own tagging:
- Which actively-managed funds own the stock of your public competitors? If they don’t own your stock but own the stock of your competitors and those ownership levels appear to be stable or growing, then meeting with those fund managers to explain why you are the most attractive “play” in your industry might be in order.
- Take a look at the “4 to 7 things” that make up your investment thesis (see Get Your Bearings). What else is so great about owning shares in your company? For example suppose you are a supplier to the fastest-growing part of the medical device sector targeted at cardiologists. Which funds own suppliers to the sectors of cardiology that are growing more slowly? Maybe you should meet those investors. They already know the growth drivers in cardiology, they should be able to appreciate your story very quickly and “triangulate” (see Get Your Bearings) your story with the people they know and trust in the cardiology business.
- Maybe this year is the year you expect to get CE mark approval in Europe. Can you think of companies that were just about where you are now a year ago? Which funds were buying those stocks last year? Maybe they like European market “plays” and would be interested in your story.
…….and so on. Much targeting and analysis is common-sense based on the thought that fund managers like certain plays. Far better to do a fair bit of this analysis from your desk and target funds that are likely to be excited by your story than turn up in Cleveland ecstatic that you have filled up the CEO’s day with meetings and see what happens.
Tap Into Your Contacts, Especially Key Influencers
This is the triangulation idea again. Some of the most important influencers can be the sell-side analysts. Now we could write for some time about how the money has left the sell-side analysis business and rather like a TV station with no money for new programming, there are a lot of analysts who just recycle old ideas and anyone else’s ideas that they can find. (How like your quarterly earnings press release and conference call with a bit of arithmetic added does this analyst’s so called report appear to be?) So first find an analyst who is recognized as a thought leader. He/She will be someone whose opinions count with investors. First convince him of your investment thesis. Then you are on to something.
After all, portfolio managers look to the best analysts for good ideas. If your company is one of those ideas, the analyst will want to get you in front of his best clients and will do so with a ringing endorsement. What better way to walk into a meeting with an investor?
Even the best analysts, or perhaps we should say especially the best analysts, have limited bandwidth. If you are a smaller company whose shares do not trade in great volume then, no matter how exciting an investment idea you are, the leading analyst is not going to write a report on your company. No coverage means the analyst is not going to be too helpful when it comes to getting you meetings with investors. However, that may not be the end of his usefulness. If your company’s technology is about to disrupt a sector in which one of his larger coverage names competes, he may write about you when next reporting on that larger name. This gives you instant credibility. When calling to set up a meeting with fund manager X, dropping the hint “oh by the way, did you see Analyst X’s report on mega-cap name Y, we were profiled as a potential disruptive factor in the space in the coming years,” will likely get their attention.