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Stop shutting retail investors out of IPOs
For too long, initial public offerings (IPOs) have been largely the preserve of institutional investors, leaving retail investors out in the cold.
Besides IPOs, retail investors are also disadvantaged when it comes to taking part in secondary fundraisings.
In summary ‘retail shareholder rights are almost completely ignored when it comes to the vast majority of IPOs, which largely take place between City institutions behind closed doors’.
This is the view expressed by the chief executives of AJ Bell, Hargreaves Lansdown and Interactive Investor in an open letter to Jon Glen MP, economic secretary to the treasury and city minister, to consider the rights of retail shareholders when it comes to IPOs.
These platforms want their arguments to also be heard by the boards and advisers of companies considering listing on the London Stock Exchange.
AJ Bell CEO Andy Bell further commented: ‘Having been through an IPO recently, one of the problems is that companies are dissuaded from including a retail element in their IPO by their financial advisers because it is easier and quicker for them to place shares with the institutions that they know.
‘This ignores the benefits of shareholder diversification, brand awareness and customer loyalty that can be gained by including retail investors in an IPO.’
Retail investors ‘are a growing market but are excluded from the majority of IPOs via the LSE, with the Hut Group (THG), Dr. Martens (DOC) and Moonpig (MOON) recent high-profile examples’, states the letter, which also draws attention to the shocking fact that private investors were excluded from 93% of share launches between October 2017 and October 2020.
A platform which provides access for private investors in company fundraisings is PrimaryBid. Investors can download the firm’s app, put in their account details and when a company announces a new share issue with a retail tranche the investor receives an email notification. They can then opt to take part through the app on a first come, first served basis. You can read more about PrimaryBid and its potential limitations here.
‘Part of this debate should be around whether there needs to be a regulatory obligation on companies coming to market to consider a retail element to their IPO.’ adds the letter, which calls on the boards, chairs and CEOs of companies considering an IPO, as well as their advisers, to ensure ‘a proportion of the shares offered through their IPOs are made available to UK retail investors’.
The letter argues that: ‘Retail investors should have as much right as any other institution to invest at IPO, rather than having to “get in line” and potentially buy the shares at a premium in the open market, post IPO.’
DISCLAIMER: AJ Bell is the owner and publisher of Shares magazine. The author (James Crux) and editor (Tom Sieber) of this article own shares in AJ Bell.