Mifid II has resulted in a research gap that is fuelling illiquidity in small cap shares as they struggle to get their message across to investors.
But out of this disruption a team of four saw what was coming three years ahead and set up Radnor Capital Partners to help corporates reach the right investors.
The firm was set up by Joshua Cryer, Tom Durie, Iain Daly and Ben Gillen, who previously worked together at corporate engagement business Capital Access Group. Now, Radnor has 20-30 corporate clients, and Cryer is quick to point out that the firm is only remunerated by its corporate clients and does not receive payment from fund managers.
The team works with companies with a market cap of anywhere from £100 million to £2 billion, as those are the ones that ‘most acutely feel’ the unintended consequences of the regulation.
Cryer said when they set up Radnor they could see that ‘it was only a matter of time until Mifid II impacted the way investors met companies’.
He pointed out that since the implementation of the regulation in January, which requires buy-side firms to pay for broker research as a separate product, research coverage has already started shrinking.
‘There are lots of nuances, but, from our perspective, we hear from clients that they are finding it harder to reach the right investors.
‘Previously brokers could call investors; all they needed was a phone number. But now, buy-side firms need an agreement to receive research.’
He added: ‘A common complaint is that coverage has fallen away. Companies can only see the top shareholders.’
He believes that this problem can be solved as it is not insurmountable, but he sees the old broker model being challenged.
‘They won’t disappear completely, but the day-to-day role of a broker will be harder to do. Investors still actively manage funds, so if brokers can’t bring them ideas, how can they find them? That’s where the gap is.’