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Asset management and fund structuring boutique

The IPO discount

Oct 19, 2022

During my last 25 years as portfolio manager, I have been shying way from IPO’s. Most often, it was not the fundamental quality of the businesses that were listed that made an investment as a value investor difficult. It was the pricing of the IPOs. The reason: by nature, the seller wants to maximise the listing price and she/he will be assisted by investment banks to build a strong narrative to support an often inflated valuation. Our chances to detect an opportunity by picking up a quality business at a heavy discount are so slim that I thought it would not justify the research effort. Not convinced? 46% of the US IPOs issued between 2019 and 2021 are trading below their listing price. The median of more these 400 listings lost 44% of their market value since their IPO. It may be much more interesting to look at them now that Mr Market has granted large rebates.

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