Traveling to investor conferences can be time consuming and exhausting. While management teams are often provided with schedules from the conference host and investor biographies from Gilmartin, a name and biography doesn’t always tell the complete story. Understanding the job function and responsibilities of the person you’re meeting with are critical pieces of information to management teams. Job function and responsibility on the buy-side does vary, considerably at times, by individual firm. Even within some larger firms, there is ambiguity on who does what related to investment decision making and discretion. However, despite variability, there are some commonalities across investment organizations within roles and responsibilities. To help management teams navigate the 2023 J.P. Morgan Healthcare Conference, we’ve compiled a comprehensive list of the “who’s who” of meetings:
Portfolio Manager (PM)
Individual or group of individuals who are responsible for making investment decisions to allocate capital on behalf of investors. They are ultimately responsible for the construction of the portfolio and are held accountable for the performance with a track record. The portfolio identifies which stocks to own and how much of each stock to own.
- Generalist Portfolio Manager: Generalist PM’s have a philosophy around what makes a stock “good to own” for a given period of time; the expected holding period. They often ask big-picture questions surrounding whatever philosophy drives their investment decisions to determine whether or not a company is a suitable “match” for their portfolio. In layman’s terms, they are looking for round pegs for round holes. These questions/criteria can range from business operations to financial performance to industry competitiveness and thematic ideas. Philosophy examples include High Growth, Growth at a Reasonable Price, Category Killers/Innovative Disruptors, Compounding Businesses, High Margin/Free Cash Flow, Asset Light/High ROIC business models, etc.
- Healthcare-Dedicated Portfolio Manager: Often have a secular view on Healthcare and innovation to drive successful investments, either as a stand-alone healthcare strategy or within a broader multi-sector team. Oftentimes, these individuals are labeled as “Specialists” who have an educational background in the sciences; MD/PhD’s who have forgone industry/academia for Wall Street. They seek to use their knowledge and education to gain insight into therapeutics and health technology companies. Healthcare-dedicated portfolio managers will sometimes have philosophies that are specific to therapeutic areas/disease, thematic and/or sub-sector specialty.
Buy-Side Research Analyst
Individual responsible for conducting research and analysis on a group of stocks, tasked with identifying which stocks align with their firms’ investment strategy/philosophy. The research analyst does the primary research and financial modeling, a similar role in some respects to a “sell-side publishing analyst.” The research analyst makes an internal recommendation to buy or sell a stock and is responsible for “dotting I’s and crossing T’s” on financial forecasts, company management decision making and updates that will ultimately drive value creation over time at companies.
- Healthcare-Dedicated Research Analysts: Healthcare is one area of the market where specialists exist and even within Healthcare, there are sub specialties; particularly Biotech and therapeutics. Similar to the dedicated Portfolio Manager, the healthcare-dedicated research analyst is focused on identifying secular opportunities for investment. Healthcare sub-specialists can have expertise in science with MD/PhD backgrounds, or industry research experience. Other sub-specialists are knowledgeable about reimbursement and regulatory matters, including FDA and CMS policies. These individuals are using their knowledge and background to identify investment opportunities that others may not have the same insight into.
While an investment committee is similar in function to a portfolio manager, investment firms do not want to place sole discretion in the hands of one individual for a variety of reasons. These committees are often a mix of portfolio managers and experienced analysts who collectively debate and decide portfolio construction. The individuals comprising the committee debate the merits of investment put forth by members of the investment team, analysts and portfolio managers and serve as a “gate keeper” to new ideas getting into the portfolio and, when identified, decide how to fund them with sales of existing ideas.
Individual who physically communicates buy and sell orders with trading counterparties to achieve desired portfolio positions of the portfolio manager/investment committee. Increasingly trading is done via electronic execution and so the execution trader role has evolved considerably over the past decade. The execution trader role and responsibility has largely been replaced by computers…NYSE floor traders were an extension of the buy-side discretionary trader, for example.
The individual who has discretion to buy and sell securities as part of a “trading book.” Some hedge funds effectively operate as a single, or multiple “books.” Often, leverage is employed in these strategies and some take market/directional risk while others attempt to eliminate it. Historically, investment banks had proprietary “prop” trading desks where they “traded” (or “gambled”) the firm’s capital. Following the financial crisis of 2009-2010, with government bailouts required to stabilize financial institutions (partially due to losses in proprietary trading), prop trading desks were eliminated and many prop traders went to the hedge fund industry. These discretionary traders are “market participants” in IPO’s, secondaries, block trades, etc. and provide liquidity to banks to get deals done—they are very rarely long-term holders of more than a few days/months.
Types of Investors
Venture capitals are focused on the individuals and the idea of the individuals. In other words, they are focused on people, concept, markets, and execution potential. VC’s seek to fund businesses with strong long-term opportunities in attractive markets where specific individuals with ideas can create value over the long term. They are betting on the individuals to create and develop products/services that can execute against a development strategy that will create value from idea/concept stage to tangible, strategic execution stage.
Growth Equity investors are focused on identifying companies with concrete products/services that need capital to accelerate growth. These are the investors that fund the “market adoption” or growth acceleration phase of a product/service life cycle. Growth Equity evaluates the people, product and market with the path to commercialization and profitability an important piece of their underwriting discipline. Growth Equity investors are looking to help a company get to “scale.”
Private Equity investors are similar to Growth Equity investors, but with a focus on valuation and financial results. Private Equity investors are looking to provide capital to help companies grow but also to help them expand their business. Private Equity generally evaluates the plan that has been successful to date with the funding from VC’s and Growth Equity and seek to replicate the success in adjacent markets, geographies, products, etc. Private Equity is valuation-focused and will look to tangible financial performance to evaluate potential opportunity for the business. Revenue growth is almost secondary to cash flow profile because private equity will evaluate capital structure, including debt, as a way to finance their strategic vision of the company. Private equity will look for valuation “arbitrage” or “opportunity” when evaluating investment opportunities very differently than VC’s and Growth Equity. A textbook example of a PE deal is to buy a business at X’s multiple of revenue with 10% operating margins, invest capital that will double revenue and expand margins to 20% over time, then sell the business at 4x revenue because size and 2x margins are attractive to Strategic Companies, Public Equity investors or other Private Equity firms.
Public Equity investors are those who buy stocks in the public markets. They are focused on the track record of demonstrated success, ability to execute against market opportunities and financial performance. Public equity investors, like private equity, rely on management’s ability to build and execute a strategic plan that will result in improved growth and profitability. Scrutiny on predictability and sustainability is high as public equity investors have thousands of alternatives and liquidity to change investments. Public equity investors are measured on relative and absolute performance which results in a constant evaluation of relative attractiveness of investment opportunities.
Many public equity investors place value on knowing the management teams, as they want a firm grasp on whether or not they are credible and capable of delivering the consistent financial performance they expect. Public equity investors come in many shapes and sizes with a variety of views and opinions on how to create shareholder value. For that reason, it is important for a management team to find and align themselves with shareholders who understand and value the strategy that the management team believes will create long-term value. The easiest way to keep a shareholder base stable is to execute the strategy and deliver financial results at or above the externally communicated plan. When execution falls short, it is management’s track record and credibility that will dictate whether shareholders will decide that the investment proposition remains compelling relative to the alternatives available to them in the market.
Meeting with investors is an important aspect of relationship development with existing and potential shareholders. Management’s highest priority should be to establish credibility with investors and to identify those shareholders who have an investment framework aligned with the strategic and financial outlook of your company. While meetings can be time consuming and seemingly repetitive, there are ways to maximize the efficiency of time invested meeting with investors. At Gilmartin, we work diligently to ensure management is spending time with the appropriate investors to develop relationships and shareholders that are aligned with the company’s outlook. Contact our team today if you’re looking for more advice on how we can help develop an efficient investor engagement strategy.