SMSFs see IPOs as too risky

IPO investment

The risks associated with initial public offerings are discouraging SMSF trustees from taking part in them, according to the partner of an accounting firm.

SMSF members are not playing a significant part in the initial public offering (IPO) market due to the perceived level of risk associated with this type of investment, a mid-tier accounting firm partner has said.

“SMSF [investments] tend to be in those less risky blue-chip stocks,” HLB Mann Judd Perth partner Marcus Ohm said.

In addition, Ohm noted many IPOs are not aimed at attracting SMSF inflows, further compromising the extent to which the sector can take part in this type of capital raising.

“A lot of these IPOs are going for those big institutional investors to begin with to get subscriptions and [again] with SMSFs [trustees] are probably looking for those slightly less risky investments. More the blue chips,” he said.

Other factors also make IPO investment more difficult for SMSF members, who are effectively retail investors, he noted.

“I think it’s difficult all round really for retail investors as far as IPOs go sometimes. There are a number of mechanisms to getting listings, like on-market book builds, that are always a bit tricky,” he said.

His comments were made at the release of the HLB Mann Judd “IPO Watch Report” for 2019, which revealed a significant drop in the number of listings for the year.

The report showed there were only 62 IPOs in 2019 in Australia compared to 93 in the previous year. This volume of listings marked a return to levels experienced prior to 2015, Ohm observed.

The drop in IPOs also resulted in a decrease in the funds raised from listing activity last year.

“The fall in listings in 2019 resulted in a decrease in total funds raised during the year compared to the previous year. In 2019, $6.91 billion was raised, down 18 per cent on 2018 when $8.44 billion was raised,” Ohm said.

Despite these findings there were some positive outcomes resulting from IPO activity during 2019.

“The average amount raised in 2019 was $112 million, up from $91 million in 2018. This partly reflects the fact that there were fewer small-cap listings over the past 12 months,” Ohm said.

“Subscription rates also improved in 2019, with 84 per cent of all IPOs meeting their subscription targets, up from 72 per cent the previous year. A number of listings were oversubscribed or raised above their minimum subscription targets.”

With a view to 2020, he said currently the IPO pipeline appeared to be soft.

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