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Ben Bucknell
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+ About Ben Bucknell

Ben is CEO of OnMarket BookBuilds and has extensive experience in investment banking, private equity, and corporate law. In 2017, Ben was named in the “The World’s 1,000 Most Influential People in Market Structure” published by Patrick Young in the UK. Ben was also named as one of the 10 most influential people in market structure in Australasia.

Prior to OnMarket BookBuilds, Ben was employed by Macquarie Group in its Equity Capital Markets division. During his time at Macquarie, Ben worked on equity raisings for takeover bids, initial public offerings and placements across numerous industries.

At Washington H Soul Pattinson group of companies, one of Australia's most prominent and diversified investment houses, Ben advised on venture capital financings, acquisitions, takeovers and equity raisings.

Having spent 6 years at Allens Arthur Robinson (now Allens Linklaters), Ben overlays his private equity and investment banking experience with a solid understanding of corporate law.

Ben is a former pearl diver with Paspaley Pearls, has studied mandarin at the Beijing Language and Culture University, holds a Commerce and Law degree (Hons) from University of Sydney and is a CFA Charterholder.

Shouldn't IPOs be fully available to the public?

Wednesday, April 11, 2018

 

Australian IPOs that listed in 2017 outperformed the benchmark S&P/ASX 200 index by an impressive 54.6%, way over the S&P/ASX index’s solid 7.0% in the same time period. But what does this mean for self-directed investors like yourself? 

Unfortunately for you, shares of larger, ostensibly less risky, IPOs are ‘pre-sold’ to institutions, even before a prospectus is lodged with ASIC.  When this happens, retail investors are legally not permitted to apply before lodgement, and after lodgement, there are no shares left to apply for.  Over the last 1,100 IPOs, on average, the trading price has opened 14.5% higher than the IPO application price.  Retail investors are forced to pay this higher price and buy from the institutions allotted shares in the IPO. 

And you thought Initial Public Offering meant that shares would be offered to the public?

In fact, 2 out of 3 Australian IPOs do not enable public participation and retail investors are prevented from investing in companies with good prospects, strong cash flows and promising valuations. In a perversion of good public policy, riskier, earlier stage companies (albeit with higher returns) are offered to retail investors while institutions are offered the lower risk IPO investments.

What then is the solution to create a fair, transparent and efficient market? If we look to successful foreign exchanges like Singapore and Hong Kong, these exchanges have long established regulations that guarantee a minimum allocation for retail investors.  If the general public does not take up on this minimum allocation, then these shares can be taken up by institutions.

But can’t companies already offer to retail investors if they want to?  It’s not as simple as that.  In an IPO, the company, usually having never been through the process, and certainly without the financial services infrastructure, is directed by the investment banks who, unsurprisingly, prefer to allocate to institutions that pay significant brokerage.  There’s nothing controversial about that statement….it is not even untoward conduct; it is simply rational market behaviour in the absence of regulations.

For the same reasons, we have regulations against insider trading.  Without them, individuals would rationally act in their economic interest.  But, the result would be significantly detrimental to market integrity and undermine broad-based participation.  Imposing a requirement that every IPO has a percentage offered to the public will increase investor participation, and lower the costs of capital for all companies that seek to list.

How can we try to change this deeply-rooted market practice which is the result of market participants acting, naturally, in their individual best interests, but collectively not in the interests of a fair, transparent and efficient market? 

The Royal Commission into Financial Services has established an investigation into practices that ‘fall below community standards and expectations’.

If you believe that it is a reasonable community expectation that Initial Public Offerings are available to the public, then the Royal Commission offers an independent forum – this can be done by emailing FSRCenquiries@royalcommission.gov.au. 

You don’t need to write War and Peace.  A short statement that you have a reasonable expectation that all initial public offerings should be available to the public is all that is required. At the time of writing, there has only been 3,071 submissions.  If everyone reading this post took just 2 minutes to send a one-line email to the Royal Commission, then just possibly, we could have regulations like other countries that give all investors equal access to all IPOs. 

Such is the irony of being a called an Initial Public Offering, when in fact, most IPOs lock out the public.  As IPOs appear to be systemically under-priced in order to create a liquidity event that attracts investment capital, let’s hope enough people make an effort.

Ben is the founder and CEO of OnMarket BookBuilds, which has been offering investors free access to IPOs since 2015.

 

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