The bleak performance of IPOs this year

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Half of this year’s big IPOs are under water

Stock markets around the world have been robust overall in 2021. But one crucial area has fallen short: initial public offerings. Half of the companies that raised more than $1bn at IPO this year are trading below their listing price.

The busted IPOs include some of the best-known names to list, such as UK food delivery app Deliveroo, alternative food manufacturer Oatly and Indian payments giant Paytm, report my colleagues Hudson Lockett and Tabby Kinder in Hong Kong, and Stephen Morris in London.

Their weak performance has raised questions about the valuations pinned to companies by large investors such as SoftBank and Warburg Pincus and leading underwriters including Goldman Sachs and Morgan Stanley.

Dealogic data show 49 per cent of the 43 IPOs that raised $1bn or more this year in London, Hong Kong, India and New York are trading below their issuance prices.

By comparison, among large IPOs that listed in 2019, about 33 per cent were below issuance price a year after hitting the market, while 27 per cent of those priced in 2020 were in the red after 12 months of trading.

Why do you think there has been such a discrepancy this year between IPO valuation and subsequent share price performance? Let me know your thoughts: harriet.agnew

Tesla’s outsized influence

“Tesla has been the poster child for irrelevant valuations — it’s almost like a random number on the Street at this point.”

So bemoaned one hedge fund manager who has lost his shirt betting against Elon Musk’s electric car maker. And it’s a view that’s shared by many a weary short seller. It helps explain why they have unwound most of their bets against Tesla, as retail investors unperturbed by Twitter polls and talk of stock market bubbles continue to pump cash into the world’s most valuable car company.

My colleagues George Steer, Laurence Fletcher and Robin Wigglesworth report that short positions in Tesla, as a percentage of the company’s total shares available to trade, have fallen to 3.3 per cent from 19.6 per cent at the start of last year, according to S3 Partners, a specialist data provider. Among those calling time on their short positions is Michael Burry, whose bet against the US housing market before the financial crisis was dramatised in Hollywood blockbuster The Big Short.

Veteran short seller Carson Block, founder of Muddy Waters Capital, said he understood the reasons people chose to short Tesla, arguing that “in principle, they’re not wrong”.

“But the other side is Elon Musk, who is better at playing the public company game than anybody I’ve ever seen.”

Meanwhile, don’t miss Robin’s riveting deep dive into what he dubs the “Tesla-financial complex”. The piece explores how the company’s role in the ebb and flow of the stock market is far greater than its $1.1tn valuation implies. Notably, it is making waves in the options market.

Michael Green, chief strategist at Simplify Asset Management, puts it neatly: “We don’t really have the language to describe Tesla any more. It’s like explaining to a person in a two-dimensional world the concept of ‘up’.”

The frenetic rally in Tesla has buoyed money management groups such as Cathie Wood’s Ark Invest and Baillie Gifford, which have bet heavily on the electric car maker. Tom Slater, joint manager of Baillie Gifford’s Scottish Mortgage Investment Trust, tells me:

“In the time since we’ve owned Tesla, we’ve gone from a world where electric cars were a tiny, obscure corner of the market, to one where we’re on a clear path to being most of the market in the next 10 years. I don’t think we would be anywhere near where we are in terms of progress towards a sustainable energy future if it wasn’t for Musk and Tesla.”

But while Musk’s fans see him as Tesla’s biggest asset, others worry that he’s its biggest liability.

One comment among Reddit’s r/wallstreetbets bulletin board — where have-a-go day traders congregate — summarised the mood as follows: “TSLA risk factors . . . Competition: 5 per cent, supply chain/production: 5 per cent, Elon Musk dumb tweets: 90 per cent.”

Chart of the week

Column chart of alternative assets under management ($tn) showing the boom in unlisted assets

Historically low interest rates and high stock valuations are driving return-hungry investors to rush into private markets, with non-publicly listed assets under management expected to rise 60 per cent between 2020 and 2025. Alternatives — a category of unlisted assets that include private equity, private debt, hedge funds, real estate, infrastructure and natural resources — are set to surpass $17tn in AUM within the next four years, according to data provider Preqin. Private equity and private debt will be the main drivers of this growth.

Eight unmissable asset management stories this week

Investors have spent the past year learning to relax about the pandemic, lulled by abundant stimulus and optimism over vaccine efficacy. That sense of calm was shattered on Friday. Global stock markets tumbled by the most in a year, shaken by the discovery of a new coronavirus variant in Botswana that was found to be spreading elsewhere. Markets are more fragile than investors think, writes Robin Wigglesworth.

“Investors have probably drunk a bit more of the Kool Aid with WeWork,” says James Hanbury, portfolio manager at Brook Asset Management, in this deep dive into investors’ starkly differing views of rival shared-office groups WeWork and IWG. The UK company is bigger and more profitable than its US-listed competitor — but has a far lower valuation.

A wave of online-only pension companies has been launched in recent years, all vying for a slice of the £1tn retirement savings market. UK savers are being enticed with sweeteners to sign up with them. But are they good value for money?

How Tiger Global tore up the rules of venture capitalism. Chase Coleman’s investment fund’s “spray and pray” strategy is betting on global macro trends rather than fussing about individual stocks.

Veteran dealmaker Martin Gilbert is on the verge of a bidding war. He is battling a rival suitor for London-listed asset manager River and Mercantile as he attempts to create a new competitor in the UK’s investment industry. River and Mercantile has also received an offer from Premier Miton, a rival fund house led by chief executive Mike O’Shea.

Rivian surged on its flotation this month. Daniel Loeb’s Third Point made a profit of about $300m on its stake in the electric vehicle maker, one of several hedge funds to make large gains from the IPO.

Regulators are increasingly concerned that celebrities and influencers are promoting high-risk digital assets on social media. The latest case involves Spanish footballer Andrés Iniesta, who was paid by Binance for a promotional tweet that provoked a backlash from the country’s financial watchdog.

Freetrade is the latest group to benefit from a boom in retail stock trading during the pandemic. The UK fintech will seek a £650m valuation in a fresh round of crowdfunding, double the value the company posted earlier this year, amid plans to push into cryptocurrencies.

And finally

‘Everything is sculpture. Any material, any idea without hindrance born into space, I consider sculpture.’

The Barbican Centre is hosting a retrospective of Japanese-American sculptor Isamu Noguchi. More than 150 works are presented, including an extraordinary range of sculptures — made in stone, ceramics, wood and aluminium — as well as theatre set designs, playground models, furniture and lighting.

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We would love to hear your feedback and comments about this newsletter. Email me at harriet.agnew

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