It’s been almost a year since in-person meetings were wiped from the calendar and replaced with all-virtual interactions. While investors and other professionals have since adapted to the efficiency of Zoom and other video platforms, research shows that physical meetings were worth the extra time and money for fund managers.
Meetings between portfolio managers and company leaders were found to predict higher investment returns in a recent paper by researchers at the Massachusetts Institute of Technology, China Investment Corp., and Remin University of China. The study, which examined investor meetings with firms listed on the Shenzhen Stock Exchange in China — where companies are required to disclose such meetings — found that a higher number of face-to-face meetings were tied to outperformance of about 70 to 100 basis points per month.
According to authors Eric So of MIT, Rongfei Wang of CIC, and Remin University professor Ran Zhang, the results likely stem from investors allocating more time and resources to meetings with firms that they perceive to be undervalued.
“Our findings suggest institutions disproportionately allocate resources to in-person meetings with underpriced firms prior to investing and rely on face-to-face contact to calibrate arbitrage opportunities,” they wrote.
They added that more frequent meetings more strongly predicted returns for firms with fewer institutional investors and less analyst coverage, which they said was “consistent with institutions benefiting most from in-person meetings among firms with lower quality information environments.”
For the study, the authors analyzed investor meetings disclosed by SZSE-listed firms between July 2012 — when the exchange began requiring firms to report private meetings within two trading days — and December 2019. They excluded press conferences, road shows, media interviews, phone and video calls, and emails to limit the sample to face-to-face meetings held with at least one institutional investor, including mutual fund and hedge fund managers.
Roughly 75 percent of these meetings were found to have occurred before the investor initiated a position in the company, suggesting that these interactions were “a recurring feature of the institutional vetting process,” according to the authors.
“In speaking with fund managers, a common takeaway is that funds pursue investor meetings to assess the intentions and quality of firms’ management as a signal of underpricing,” the trio wrote.
They cited an example from a fund manager at Bank of Communications Schroder Fund Management, a joint venture between Schroder and the Chinese bank. This manager reported meeting with the new chief executive officer of the Centre Testing International Group, a Chinese testing and inspection company whose stock price had plummeted following the CEO’s appointment.
“The face-to-face meetings allowed BSFM to assess the new CEO’s character and strategic initiatives, and bolster its belief that CTI’s stock had been excessively penalized,” the authors wrote. “Soon after, three of BSFM’s funds initiated positions in CTI, whose stock rose more than three-fold in the two years that followed.”
In addition to their sample focusing on Chinese companies, the authors also analyzed investor interactions with U.S. firms at investor conferences. Specifically, they looked at how frequently the U.S. companies were invited to participate in these conferences, arguing that more invitations indicated “institutional demand to commit time and resources toward a particular subset of firms.”
As with their analysis of face-to-face meetings, authors So, Wang, and Zhang found that abnormally high conference attendance positively predicted future returns.
“These findings reinforce the idea that face-to-face meetings between firms and investors are an important part of formation of investors’ beliefs and subsequent portfolio allocation decisions,” they said.