A company’s capital allocation policy is often the most crucial component of both its equity story and of management’s credibility. As some investors say, it is not the company’s capital but investors’ that is being deployed and this can only continue as long as companies demonstrate an ability to generate attractive risk-adjusted returns. It also forms a key identifier for various investment strategies, such as growth versus income.
While capital allocation is under intense scrutiny from stakeholders, FGS Global receives consistent feedback that detailed and strategic communication on these is overlooked. Policies are seen as high-level and without clear prioritisation, with management appearing unwilling to commit to defining the trajectory of the company.
Management must navigate the fine balance between having a capital allocation policy that is clear and precise enough to inspire investor confidence, while providing the flexibility to endure unpredicted disruptions without shocking the market. And IR professionals are often left to balance internal pressures with investor expectations for clarity and transparency. The FGS Global Equity Advisory & IR team leverages its deep sector expertise to advise companies on all matters related to their capital markets communications, providing an objective framework to make sure this debate is the right one. Supported by insights from over 260 perception study interviews conducted with investors and sell-side analysts, we set out 5 practical recommendations to align with best practice and inspire investor confidence.
