The boom in self-managed super funds and higher participation in floats signals new opportunities for boards, writes Tony Featherstone.
Listed-company boards have collectively improved their investor communication since the global financial crisis (GFC). Chairs are more available for institutional investors, proxy advisers and other key stakeholders, but communication with retail investors needs more work.
Stereotypes of “mum and dad” share investors, supposedly uninformed and with tiny holdings, are dangerously off the mark. Today’s retail investor is more likely to be a self-managed superannuation fund (SMSF) trustee with a million-dollar portfolio.
SMSFs held $558 billion in assets at September 2014, Australian Prudential Regulation Authority data shows. That is a third of the combined market capitalisation of all ASX-listed companies and growing quickly. Deloitte forecasts SMSF assets will be $3 trillion by 2035.
A million SMSF members will be joined by more retail investors in the next few years. Government privatisations, such as Medibank Private, historically attract new investors and several large initial public offerings (IPOs) this year have been well supported by the retail market.
Moreover, record low interest rates are driving income-seeking investors to the sharemarket. With expectations building for interest rate cuts in 2015, investors who are stuck in cash will be forced to consider equities for their dividend yield.
I am not suggesting a sudden influx of retail investors. But the Medibank Private IPO shows there is a wall of retail cash waiting to be invested and long-term trends suggest solid growth in the number of retail share investors.
Some companies, of course, spend considerable time and money communicating with retail investors and meeting key bodies that represent them. They value their retail shareholder base, listen to them and provide information for all investors. They ensure greater fairness in equity capital raisings for retail shareholders and capital-management policies have been better tailored to them, through higher dividends and franking credits.
But not enough listed companies are planning for the growing influence, size and power of retail investors in the coming decade, principally through SMSFs. Or the opportunity to tap a fast-growing pool of patient, long-term capital.
In many companies, the chair’s investor relations “bandwidth” is understandably directed mostly at institutional investors and proxy firms. The annual general meeting (AGM) remains a snorefest with too much emphasis on process rather than strategy (to read more about the AGM turn to page 28). The corporate website is still “brochureware” rather than an insightful resource for retail investors, and there are too many overly long, impenetrable annual reports.
Adoption of technology to reach retail investors, although improving in S&P/ASX 200 companies, is too slow. Analyst presentations that could have video or audio to bring them to life are filed as a dull PowerPoint presentation via the ASX Company Announcement Platform. Corporate smartphone apps that could reach retail investors daily are still scarce, and there could be better use of social media after company announcements have been filed.
Also, too many company reports still read like lawyers have written them for other lawyers. Many resource companies are crying out for retail investor support, yet present their results in an almost foreign language to those without geology degrees.
In fairness, greater focus on retail communication is expensive. SMSF trustees can be hard to reach and groups that represent retail shareholders, while doing a good job, are tiny compared to other investor associations. Then there is the challenge of retail-friendly language under the continuous disclosure regime.
Yes, there are obstacles. But another $2.5 trillion in SMSF assets by 2030 and greater retail participation in the sharemarket is too big an opportunity and threat for boards to ignore.
SMSF members and retail investors are the type of long-term share owners that many listed companies crave. There will be an incredible pool of capital for well-governed companies that value and reward long-term retail investors.
The sheer growth of superannuation will expose the lack of investible opportunities in Australia. As SMSFs grow, more funds will be invested offshore, from a current low base. An insatiable retail appetite for yield could also make it harder for companies to reinvest and grow.
Another critical trend is technology shrinking the middle layer between companies and their beneficial owners, which I write about this month on page 32. Fewer stockbroking analysts, fund managers and journalists means companies will need to own the investor relationship like never before.
Boards must ask if their organisation is doing enough to serve retail investors, if current information is appropriate and what could be done to lift communication. Does the board understand SMSF needs and is the organisation building stronger links with this segment? And is it leading or lagging in adopting technology to communicate with retail investors?
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