A number of smaller publicly listed companies in the United Kingdom are scrambling to prove their liquidity – a problem that underscores the need for rapid, effective investor relations. Here’s what happened and how some publicly traded firms have been affected:
What is the Woodford Crisis?
In June, high-profile Woodford Equity Income Fund, one of the investment world’s success stories, suddenly became an investing headache when the company suspended activity on its flagship Woodford Equity Income Fund. Why did Woodford suspend activity? Because:
- After Woodford made a series of bad investment decisions, the resulting poor performance of the fund unnerved investors and prompted a sharp increase in the number of investors withdrawing their money.
- Woodford was unable to sell off assets in a timely fashion to return investors’ money. The company had invested too heavily into illiquid stocks, which are harder to sell.
- So Woodford blocked customers from making additional redemptions. The Guardian reports that their money will likely be frozen until December. In a statement on its website, the company says, “The suspension will be lifted when the fund’s repositioning is complete, with less exposure to illiquid stocks.”
Since the scandal unfolded, the investment firm’s reputation has taken a major hit. Bestinvest’s biannual report just named Woodford the worst-performing investment fund in the United Kingdom.
How Have Smaller Companies Been Hurt by Woodford?
The increased scrutiny about the highly illiquid stocks that Woodford invested in has also hurt the reputations of smaller listed companies. As reported in The Times, the scandal has hurt investors’ appetite for less liquid stocks, or stocks that usually have a market capitalization in the range of £50 million to £500 million. Those types of companies are desperately focused on proving their liquidity.
The Times article cites a report from Edison Research, an investment research firm. According to The Times:
Edison, an independent investment research firm, said that the fallout after the star stockpicker suspended redemptions on his main fund had led to increased scrutiny around the liquidity of companies worth up to £500 million.
Hundreds of companies could be affected and portfolio managers are urging Aim-listed companies in particular to beef up investor relations operations or employ a joint broker to improve trading volumes in the shares.
Mr. Woodford’s problems had “heightened risk perceptions around low liquidity among the fund management community, creating a greater onus on companies to build up a pool of investors or to go private”, Neil Shah, director of research at Edison, said.
In other words, smaller companies need to amplify their voices to investors – which is where investor relations comes into play.
What Should Smaller Companies Do?
It is clear that smaller companies need to act quickly. They need investor relations support to do a number of things, such as:
- Launch a sustained communications campaign focused on UK investors who view the companies with uncertainty.
- Bolster their websites and socials with clear facts about their value and liquidity for investors who are likely coming to them for insight.
- Prepare senior officers with consistent messaging to address investors.
Of course, those companies that already have strong investor relations teams in place have an advantage. They still must manage through a perception problem, but they are in a better position to act quickly.
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