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Chris Fenske   00:00:00

Welcome to another edition of capital markets conversations. I'm Chris Fenske, joined by my colleague, Carl James. Today, we'll be discussing capital markets analytics. So for start, I mean, I've had the pleasure of working with our municipal bond sector. I've worked with the corporate sector, currently working with our equity capital markets clients. And over the years, I've noticed there's a lot of similarities. Anybody that's trying to raise capital, whether it's municipal bonds, whether it's an IPO, you're doing a lot of the same type of things. You're just doing it differently. So we've been working with clients across these sectors trying to make that whole process more efficient. Everything has 3 key components. There's the pitch, basically tools and data to actually make the pitch more effective when you're approaching issuers, distribution from the ECM, DCM side or the public finance side. And then the other side of that is investing from the investor perspective, determining what you're going to buy. And then lastly, I mean, post-deal benchmark and surveillance. So Carl, from your experience conversation with clients, how do you think these different processes are similar? And how do you think they're different for different types of sectors?

Carl James   00:01:16

Thanks, Chris. I actually thought what you said about those 3 specific elements. I thought it was a virtuous circle actually because the the post-deal benchmarking and surveillance actually leads you back to when you're pitching and winning. It's actually look at my track record of what I've done and what happened afterwards. So there is a nice virtuous circle that goes on. In terms of your question, when you think about different asset classes, clearly, if you're in equity, you're selling part of the business, whereas in corporates or debt, if you like, you're actually raising money or you're borrowing money, I should say. Now they are 2 very different things, and there's analysis that needs to be done that's very different and the data needs to be very different as well. So I think you're right, conceptually, these are the same things. But actually, when you dig into it, the investor is buying something very, very different from each one.

Chris Fenske   00:02:15

Very different. But at the end of the day, it's starting with the underwriter actually showing their credibility with something like league tables. Here's our performance of the deals were underwritten, whether it's debt, whether it's equities, whether it's follow-ons or converts, there is a lot of similarities there. But no, I agree with you. It's definitely different types of investment instruments and different repetitiveness from an issuance perspective, particularly with debt that you don't see in equities.

Carl James   00:02:43

It was interesting you mentioned league tables. Those league tables are jealously guarded if you're #1 or #2. That ranking is so important. That's the first place that people go to, to assess what an underwriter can do for you. So it's interesting, you referenced those league tables. Whenever I've been in this part of the trading world, that was the lead thing. What else would you say when you're in the pitching element, what else would you say the metrics of success?

Chris Fenske   00:03:18

Overall execution, how you've executed versus comparable deals at the time when you're bringing deals to markets, the ability to actually monitor forward supply. I think also from a pitch perspective, you only have limited resource, limited time to pitch different issuers. So I think tools like tracking maturity walls, determining when debt is going to mature, when it has to be refinanced, you need to be very adept at that to sort of zero in on who you're going to target. Potentially, data science has a role on this, too. And I think more and more investment banks are deploying data science to find M&A targets, potential issuer targets, something like an equity follow-on that's actually relatively easy to predict. I mean a lot of for a public company, the burn rate of cash is there. You could use a lot of other tools to figure out when they typically do tap the equity markets versus the debt markets. So these are a lot of things as far as the efficiency of targeting, deploying your bankers as effectively as possible.

Carl James   00:04:15

I do like the idea as well, and this is -- this leads to that virtuous circle when you've got those post deal. But in the pitching element, you've also got who participated in that deal as in what quality of investor came to that deal, who were you able to attract? So I think in there, you've talked about deal execution level. Now I think that goes off at 2 levels. There's the explicit price, what were they able to get the deal away at. But there's another level, which is the quality of investors. For example, if you have hedge funds, potentially they can flip those deals -- and then you're unsure of the quality of the investors that hold either your equity or your debt, whereas if you have high-grade institutional investors, then actually the volatility, if you like, or the turnover of the holdings reduces massively. That is a strong indicator because, again, that leads to the idea that who you need to pitch to once you only the issue.

Chris Fenske   00:05:23

You also mentioned investors, and particularly with high grade. So from a debt perspective, investors typically buy the same name over and over again in the new issue market. I mean you have a limited amount of credit analysts that could only cover so many credits. Unlike the equity market where in an IPO, you're starting from scratch. It's clean slate. You got to start studying the company, understanding the company, talking to the management team. It's a very different process than debt is. So that segues into the other part of this is targeting. what kind of tools, your distribution team, you have a sales team that's talking to clients should have a good handle on what the clients want. You got to look at past participation to your point. So look at who you've sold similar deals to in the past, would they be willing to look at this same deal now, assess order allocation history fill rates, what kind of fill rates have been given this particular client based on the type of orders they've given me in the past. The road shows are an essential part of a lot of deals, probably more so in equities, but in debt, too. There's a lot of debt roadshows, too, and that's becoming more and more popular to get the investors or potential investors engaged with the management teams. And then something like our BGo data, -- we're basically looking at investor holdings history. You have a couple of comps in mind, like if they bought these particular type of IPOs, maybe they'd be interested in this one. It's very similar, maybe even potentially better. So these are all type of tools that are important on the distribution perspective. And distribution, a lot of times, that is the secret sauce or that is the major value proposition for a lot of the investment banks underwriting these deals, a very strong sales team that actually has good penetration with buy-and-hold type investors.

Carl James   00:06:59

The roadshow that you talk about, they are so important because you're able to bring the company's management round in front of investors. And actually, you get an assessment by the investor assessing the management of the company about their strategic aims, what they're going to do with the money, how they're going to make that revenue. And then the flip of that is that the management of the company are able to look at investors and understand from them what is essentially their investment profile, what are they hoping to achieve? And actually, you do get some nice marriages, if you like, of the management of the company likes the investors and vice versa. And to your point, it is usual that investors will come back to that company again and again because they get a little bit more involved in the management. It's not just an other COG in a huge machine. It's actually a specific company and they're investing in that specific sector and also that specific company, which is a metric of success. It's not just random. These are investors that want to deploy capital.

Chris Fenske   00:08:08

And people are finding more and more too. So one of the most useful aspects of road shows is the actual data exhaust. How many times did they attend roadshows? How long did they sit in on the roadshow? How many people on the investment team from that particular firm during the roadshow? And then marrying this data, aggregating it, splitting up by sector, sales coverage gives you a lot of valuable insight even for future deals that you're looking to bring to the market to explore interest. someone that's spending a lot of time potentially is probably more of a buy-and-hold investor if they're doing a lot of engagement. It's possibly a credit or an equity that they actually do plan to hold on for a while, maybe making an even bigger possible allocation request or indication of interest. So yes, there's a lot of good data exhaust and putting that alongside something like a book building platform is potentially very powerful as far as giving instant insight when you're determining who's going to get what type of fill rate on their allocation.

Carl James   00:09:00

When you look at issues in a singular lens, there must be some way of looking at it in a relative sense -- what's the sort of things that you would want to look at, so you have different dimensions?

Chris Fenske   00:09:12

One of the things we're working on now is underwriting benchmarking. So benchmark, basically taking case of an IPO, taking the shares, your portion of the shares that you underwrote you sold to investors and creating almost like a portfolio of everything that you underwrote in a given year and then tying a daily stock price to those investments. So it's a way of basically showing which issuers that you supported performed the best, which didn't perform as well, which underwriters is performing better at certain sectors. Maybe they have certain banking relationships that others don't have for better performing companies. So that's like the next step in granularity. In the past, creating that type of benchmarking, has been done, but it's very manual. You're downloading tens of thousands of prices or spreads in the case of bonds. But now working on ways of making that much more efficient and looking at post-deal performance. Even something like performance after lockup periods expire, that's a big one. That's something that we know that a lot of investors look at very closely on their calendars when the actual lockout provisions expire after X amount of days. So that's something that we're looking at, too. A lot of this post-deal performance is very important. It's getting looked at more and more as time progresses.

Carl James   00:10:21

So not only would you look at the details of when either the equity is issued or the debt is issued as in what investors you can bring to that or which price it gets issued at, but actually it moves into the secondary market as well, I think, is what you're saying. And you marry those 2 data sets up. Okay. So actually, where we are is that the data that you have for pitch and win actually comes from the distribute section. That also comes from the post-deal benchmarking and surveillance. So there's this wonderful circular element. What else should we consider in this space, Chris?

Chris Fenske   00:11:04

A big focus of our bank clients across debt and equity is just wallet share. Banks need to benchmark themselves as far as what portion of fees that they're collecting. A lot of that forms the strategy. Do we invest more in research in a given sector? Do we bring over bankers from other banks to fill in gaps? Wallet share is something that more and more clients request that type of information for us. We actually do have a lot of information on hand as a way of sort of their own internal report card. It's not necessarily something that they're going to be sharing on pitches, but it's something that's extremely important because at the end of the day, profitability is what drives business decisions and strategies in this space.

Carl James   00:11:41

So from a bank's perspective, they've got to be the tie-up from the underwriters and the syndicate desks to the sales and trading desks to the trading desks so that there's this connection of their ability to win business.

Chris Fenske   00:11:55

You need all 3. You need all 3 groups to work in harmony. Basically, there's got to be a lot of interaction as far as information exchange, client messaging, deal messaging, things like that, that are essential. So yes, these are all very important parts of the process. And capital generation drives growth, infrastructure improvements, expansion, discovery of new pharmaceuticals and revolutionary drugs as well as the technology and AI and a lot of the other things that we enjoy today.

Carl James   00:12:27

Could we say it's the efficient deployment of capital, which essentially drives innovation. I think that's been very interesting, Chris. And in terms of the pitching and then understanding the distribution element to it and then lastly, the post-deal benchmarking, which then leads back to the pitching part. That's super clear. Chris, thank you very much. I thought it was very interesting.

Chris Fenske   00:12:52

Always good to catch up. Looking forward to the next coming up soon.

Carl James   00:12:57

Thank you.