SEC Disclosure Rule Dims Appeal of Conferences
By Cheryl Winokur Munk, 02/27/2001, The Wall Street Journal

NEW YORK -- Fund manager John Jares is frustrated.

Mr. Jares, who runs the Delaware Balanced Fund, is one of a number of investors finding Wall Street-sponsored investment conferences less useful these days because of the Securities and Exchange Commission's new rules on disclosure. While conferences haven't become useless, "the early returns anyway aren't positive," he said.

Traditionally, a firm's best clients were invited to attend. But the SEC's Regulation Fair Disclosure, which took effect Oct. 23, bars companies from sharing important information with a select audience. That has made companies less likely to share juicy tidbits in breakout sessions and in general presentations at these conferences.

In one sense, this means that Regulation FD is working. But to the dismay of some investors, the well of nonmaterial information has also dried up. In addition, companies are Webcasting the presentations or issuing news releases before their conferences, making some investors wonder why they are shelling out money to go.

"These were things that were meant to bind you to your buy-side clients" and now their value has been reduced, said Pat McGurn, vice president of Institutional Shareholder Services, a proxy advisory firm.

That's good news for sell-side analysts at firms other than the one hosting a conference because they can now tune in via Webcast. But it's also troubling because the quality of information has gone down, said Perry Boyle, director of East Coast research at Thomas Weisel Partners LLC. Many companies are now revealing less detailed information about their operations because they know that everybody will have access to it "and in many cases they don't want that," Mr. Boyle said.

Barbara Rishel, co-manager of ARK Value Equity Fund at Allied Investment Advisors, said companies now have a Reg FD disclaimer, warning investors away from asking questions about things not yet made public.

Ms. Rishel said she heard one of these disclaimers for the first time at a Salomon Smith Barney technology conference last fall. "There was no new information and the responses to the questions weren't very helpful," she said.

"In the past you had a pretty good chance of getting your questions answered. Today you have probably a 50-50 chance," said Mr. Jares, the Delaware Balanced Fund manager.

There are exceptions. Some management teams have used highly publicized conferences to manage earnings expectations. For example, Cisco Systems Inc. Chief Executive John Chambers used two public appearances in January to do just that. But examples like that are the exception now, not the rule, investment managers said.

Meanwhile, if the quality of information continues to drop, so too may conference attendance. Frank Fernandez, chief economist of the Securities Industry Association, said the trade group is doing a study to learn whether fewer people are attending conferences. Preliminary data show that attendance is waning, but how much of that is due to Reg FD, is unclear. "I think some of it is due to it," Mr. Fernandez said.

Richard Welsh, portfolio manager for the Evergreen Foundation Fund, said he goes to eight to 12 conferences a year and doesn't expect that to change because it allows him to see multiple companies at one time. "It allows me to focus on an industry exclusively for a set period of time."

But buy-side analysts will probably go to fewer conferences because they are available on Webcasts and because the level of information that is disseminated is less, Mr. Welsh said. You don't get breakout-room guidance like you used to and "the overall volume of information is down because a lot of companies are afraid of selective dissemination."

Mr. Jares said he'll still go to conferences, but he'll probably go to a fewer number of them. And if he's on the fence about one, he'll likely stay home, whereas in the past, he might have gone.

Of course, conferences aren't likely to go away. Certain of them will continue to be well attended because of the subject matter. People also attend conferences to network, gain general industry knowledge, learn about new industries and new companies, and to meet one-on-one with particular managers.

William Walker, president of Howard Weil, a division of Legg Mason Inc., said more than 300 people have already signed up for the firm's 29th energy conference in late March. He said he expects a bigger crowd this year because of the sector's prominence in the news. Nonetheless, Mr. Walker said he thinks a number of conferences will fall by the wayside.

Sometimes, however, conferences are important for the incidental information companies give. For example, at a recent energy conference given by UBS AG's UBS Warburg LLC unit, Dynegy Inc. showed a slide of its broadband network, giving analysts a hint that the company is concentrating more resources in that area than it is letting on, one attendee said. (Broadband refers to cable or other devices that carry a wide range of frequencies or channels and large amounts of information.)

"Really what we're trying to do is build a jigsaw puzzle," said Andrew Cook, associate director of research with Citigroup Inc.'s Citigroup Asset Management, who said he still finds conferences useful. He said his analysts don't go to conferences to be told how much a company is going to earn next quarter. They go to uncover the fundamentals of the company, such as volume, prices, key cost drivers, and trends that will change dynamics in the industry five years ahead. Mr. Cook added that the chance to meet individually with a company's management is also a reason to keep going to conferences.

Chris Welch, a buy-side analyst with Villanova Capital, the asset-management arm of Nationwide Financial Services Inc., agrees. "You can see one company talking about some issues and you can go ask another company, a competitor, `Well they said this, what's your response?'" It's not necessarily material information, but it's helpful for the overall analysis of a company, Mr. Welch said.

Louis Thompson Jr., president and chief executive of the National Investor Relations Institute, said a survey on Regulation FD released yesterday shows that the majority of companies are putting out the same amount of information they did before the rule took effect.

But when he talks to analysts and institutional investors, they complain the richness of discussions isn't the same. He said companies can -- and should -- talk about nonmaterial things that are important to analysts and investors, like corporate branding, quality of management, distribution channels and market share. "Just because you're not saying `We're expecting 15% growth in revenue next quarter' that doesn't mean that you can't make a presentation that has a lot of quality information in it."


  1. Will Regulation FD cause markets to be more or less efficient?  Explain your answer.  How would you test your theory?
  2. How would you expect Regulation FD to affect full service brokers?
  3. How will Regulation FD affect the reliance of firms on internal funds versus external funds?  (Hint: look up the pecking order hypothesis)
  4. Since more people will get information simultaneously, will the result of Regulation FD be abrupt moves in price up and down?  Explain your answer.
  5. How will Regulation FD affect the desire of foreign companies to list on US exchanges?