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UK INITIAL PUBLIC OFFERINGS
Private Wealth Managers’ Involvement in UK Initial Public Offerings In May last year Peel Hunt, in association with the WMA, canvassed the WMA’s membership and published a “Survey of Private Wealth Managers’ Involvement in UK Initial Public Offerings”.
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he genesis for this undertaking came in the aftermath of the successful flotation of Direct Line Group plc (DLG) in October 2012, which at the time appeared (correctly) to indicate a reopening of the UK IPO market, and the differing reactions to the float we received from members of the WMA community. The IPO of DLG incorporated an Intermediaries Offer, which ultimately was allocated 15% of the total issue. The 19 Intermediaries were execution-only and advisory brokers, with the Intermediaries Offer aimed squarely at the self-directed Retail investor. The allocation to the Intermediaries was c.60% of their demand, a positive result even for many major institutional investors in a well-covered IPO. Was DLG (and a number of subsequent IPOs) therefore a positive statement of fact in favour of active Retail participation in major UK IPOs? What was not to like? Unfortunately for the WMA’s membership, many discretionary managers, who had placed orders for stock, found their allocations were materially lower than the c.60% received by self-directed investors. Their allocation came from the Institutional Offer and, in many cases, they found themselves treated as marginal investors and received de minimis allocations. This gave rise to one of the major themes uncovered by the survey, that of an inconsistency as to how the Retail investor base, within the investor class itself, is treated and classified by the market at IPO. Is the consistent involvement of the entire WMA community in UK IPOs achievable? Since the May 2013 survey the IPO market in the UK has, encouragingly, seen a number of larger IPOs include a Retail Offer and overall volumes of companies coming to market have accelerated in recent months. In particular, of course, in October we had the IPO of Royal Mail Group, with an offer to 22 WMA JOURNAL
the public via Intermediaries and the internet, and the huge public appetite for the deal reminded the market of the vast potential for Retail demand in the UK. Immediately after the flotation of Royal Mail, the WMA and Peel Hunt did another survey of the WMA membership, concentrating on their experiences in Royal Mail and asking “Does anybody know who ‘Sid’ really is?” The survey again highlighted the variables in the Retail community and between firms with differing types of underlying Retail clients. Whilst this level of inclusion in recent IPOs is clearly to be welcomed, Retail involvement in the likes of DLG and Royal Mail was in many ways to have been expected. The real test will be the continued involvement of Retail in UK IPOs as the market furthers its recovery, particularly in less obviously Retail-centric companies. And will Retail involvement via Intermediary Offers extend beyond self-directed investors to include discretionary managers? This highlights the second key theme uncovered by our surveys – the lack of consistent involvement of Retail
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The default position of many bookrunners is that this segment of the investor base is too fragmented and cumbersome to deal with investors in UK IPOs over the longer-term and the recommendation of a mandatory retail tranche for all IPOs above a certain size. In the absence of a mandatory retail tranche, discretionary fund managers have no choice but to be reliant on the Co-ordinators/Bookrunners of UK IPOs to solicit and accept their demand and then hope that this interaction will be rewarded with sufficient allocations to make their involvement worthwhile. The default position of many bookrunners is that this segment of the investor base is too fragmented
and cumbersome to deal with effectively, particularly in a relatively dynamic situation. Aside from IPOs, Bookrunners tend to see the difficulties of interacting with private client wealth managers being particularly acute when the equity raising transaction is confidential, as with most secondary fundraisings, and key investors need to be made ‘inside’ ahead of public announcement. Is there anything that discretionary managers can do to become more ‘relevant’ to bookrunners and seen as a source of material, accessible demand? For many of the larger banks and brokers acting as bookrunners, private client wealth managers are not part of their regular investor client base and they do not understand them well. Many see them as lacking in scale, being a small source of potential demand, and being internally fragmented in terms of who controls AuM and, therefore, lacking the ability to deliver a single significant order. They fail to realise that an increasing number of managers now have centralised investment processes that allow dialogue with a central figure within the fund manager who can disseminate information and collate demand. What many also fail to see is not only the significant assets managed by an increasing number of individual private managers but that in aggregate, and with determined aggregation by an experienced bookrunner, Retail demand can be materially accretive to the shareholder register at IPO. Thankfully, after a number of fallow years, the level of IPOs in the UK is increasing. This is good for the UK equity market, good for Retail investors and the private wealth managers and brokers that service them, and, ultimately, good for economic growth. Pleasingly a number of high profile floats have included dedicated Retail tranches. However, what remains to be established and proven is the consistent involvement of the entire WMA community and consistent Retail involvement across UK IPOs as a whole. Luke Simpson Corporate Sales/Syndicate and Investor Relations, Peel Hunt LLP www.thewma.co.uk
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