BlackRock Balks at Quality of European IPOs

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BrokerDealer.com blog post courtesy of extracts from FT.com

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BlackRock, the world’s largest institutional investor, has sounded the alarm over the quality of European IPOs as hedge funds increase their bets against private equity-backed flotations, after the market for companies going public was soured by a string of high-profile failures. BlackRock said the flotation process needed to be improved, after the best six months for European IPOs since the financial crisis was ruined by poor market debuts from companies including Saga, the UK retirement group, Applus, the Spanish industrial testing business and eDreams Odigeo, the online travel agent.

Mr Leach told the Financial Times that the sheer volume of IPOs coming to market this year had affected communication between issuers and investors: “There has not been the same level of thoughtfulness and dialogue on valuation and structure.”

BlackRock tracked 104 IPOs in Europe in the first six months of this year, of which 38 deals – just over a third – are trading below their issue price. The Eurostoxx index is down around 0.5 per cent so far this year. Twenty companies which had been planning to go public – including names such as retail chain Fat Face – pulled their flotations. This year €33.7bn has already been raised in the European IPO market, more than in any full year since 2007, according to PwC.

Some of the worst performing IPOs in Europe have been those brought to market by private equity investors, with eDreams Odigeo, backed by Permira and Ardian, and Applus, the Carlyle-backed inspection group, both issuing profit warnings soon after listing. Many private equity groups use independent advisory firms such as STJ Advisors, which investment bankers say are too aggressive on pricing.

Investment bankers hit back at BlackRock’s criticisms of recent IPOs. A senior banker at one large bank said: “BlackRock wasn’t complaining after the first quarter when all the IPOs were up. Every potential investment should be looked at on its individual merits. The last time I checked, fund managers weren’t forced to invest.”

For the entire story from FT.com, please click on this link.

BrokerDealers’ Prime Brokers Cutting Back on HF Clients:Goldman Sachs Squeeze

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BrokerDealer.com blog update courtesy of extract from Finalternatives.com

FINALTERNATIVESNew U.S. banking regulations are putting the squeeze on prime brokerage units, and none are feeling it more than clients of brokerdealer Goldman Sachs.

The Wall Street giant has cut ties with some unprofitable clients and begun to impose new fees on others, as it seeks to cut its assets to increase its leverage ratio, which must rise from 4.5% to at least 5% by 2018. “It’s a total redefinition of what’s a good customer,” S3 Partners’ Robert Sloan told The Wall Street Journal.

In order to reduce its balance sheet, Goldman has asked clients to withdraw cash held in their prime-brokerage accounts. It is also charging more to finance trades and has added fees for untapped credit lines, according to the Journal.

Whereas Goldman and other prime brokerages have previously evaluated their business based on revenue, Goldman is now telling clients it is judging theirs on return on assets. The result has been that some hedge funds that produce little or no return for the bank have been asked to take their business elsewhere.

For the full coverage from Finalternatives.com, please click here.

BrokerDealers Instant Message Battle v. Bloomberg Chapter 2: Perhaps Perzo

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As an instant update to the July 31 BrokerDealer.com blog post profiling Blabber, the instant message (aka IM) application created by Goldman Sachs as a possible industry replacement for the ubiquitous Bloomberg LP chat service that connects Wall Street traders and salesman to their respective buyside customers, we thank Silicon Valley Business Journal contributor Jason McCormick for his coverage below.

perzo imPerzo Inc., an instant-messaging service based in Palo Alto, is in negotiations for a possible sale to a group led by Goldman Sachs Group Inc., according to the Wall Street Journal.

The group of financial firms, including JPMorgan Chase & Co. and Bank of America Corp., is seeking an alternative to Bloomberg LP’s messaging service, which has become a dominant way for Wall Street traders to communicate.

The Journal reported that the group is mulling an investment between $40 and $50 million in the company, created by communications executive David Gurle. The company already has financial backing from Merus Capital, which was founded by former Google Inc. executive Sean Dempsey.

The talks come following a push by Goldman to ban its traders from using some instant-messaging services offered by Bloomberg and others, according to The Wall Street Journal.

Bloomberg is facing pressure after reports surfaced that journalists in its employ used the service to check on the activities of its users.

http://www.bizjournals.com/sanjose/news/2014/08/04/perzo-an-instant-messaging-startup-may-tilt-at.html

Fidelity Investments Partners With BrokerDealer Credit Suisse for IPO Deal Flow

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Fidelity Investments and investment banker/brokerdealer Credit Suisse have formed a partnership that gives Fidelity’s retail brokerage clients access to participate in initial public offerings and follow-on equity offering underwritten by Credit Suisse. The partnership opens up IPO investing for customers of Fidelity’s registered investment advisor (RIA) network, its family office clients and its retail brokerage customers who qualify.

For Credit Suisse, the arrangement opens up its potential investor base to a wide arena of new customers. “It gives us the ability to distribute shares into the mass market that we didn’t have before,” David Hermer, Credit Suisse’s head of equity capital markets for the Americas, told New York Times DealBook.

About 232 companies have gone public so far this year, nearly 79 percent more compared with those in the period a year earlier, according to data from Renaissance Capital. By Mr. Hermer’s reckoning, the I.P.O. surge is still only in its early stages.

Credit Suisse completed 63 book-run IPOs in the first half of 2014, its most active half-year period on record. For that period, Credit Suisse ranks number two for IPOs in the U.S. and in the EMEA area–Europe, the Middle East and Africa. Looking ahead, Credit Suisse is working on several high-profile deals, including the much-anticipated IPO for Chinese internet company Alibaba.

And, the thinking goes, the more companies that Credit Suisse helps take public, the more that Fidelity customers benefit. The IPO participation is open to Fidelity investors with a minimum of $500,000 in retail assets.

Accredited Investor Rule Subject To Change Thanks to Crowdfunding and JOBS Act

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Brokerdealer.com blog update courtesy of extract from FINalternatives.com

FINALTERNATIVESThe Securities and Exchange Commission is considering changes to its 30-year-old definition of “accredited investor” that could have serious implications for the crowdfunding industry.

Accredited investors are permitted to participate in private securities placements, and since the passage of the JOBS Act in 2012 opened the door to general solicitation for investors, many have been finding those opportunities through crowdfunding platforms.

The current definition of an accredited investor, written in 1982, says it is a person with earned income in excess of $200,000 (or $300,000 with a spouse) in each of the prior two years or one with a net worth over $1 million (alone or with a spouse), excluding the value of his/her primary residence.

Those pushing for change say the income thresholds have not been updated for inflation—that in today’s dollars, $200,000 and $300,000 would be $500,000 and $700,000.

But critics, like Brendan Ross, president of Direct Lending Investments, say such a change would halve the number of accredited households in the U.S., which today make up, by the SEC’s own calculations, 7.4% of all households.

Ross, who manages a short-term, high-yield small business loan fund, told FINalternatives that as regulators “become more educated on the implications of such a change, they will be less likely to move forward.”

“This would negatively impact the investment management industry as the number of accredited investors would sharply decrease. It’s unlikely that the SEC would want to impinge upon the private placement industry, which is the source of most financial innovation. Value investing, small companies, emerging markets, commodity funds, and REITs all started with accredited investors putting money into private placement vehicles, which then evolved into mutual funds.”

 

For the full story, please visit www.finalternatives.com