The CEOs of AJ Bell (AJB.L), Hargreaves Lansdown (HL.L) and Interactive Investor, businesses that together administer over £200bn ($280bn) for around two million retail investors in the UK, are demanding that private investors be given access to all IPOs.
They have written an open letter to John Glen, economic secretary to the Treasury and city minister, calling for a consultation on how retail investors can be given access to IPOs and not disadvantaged in favour of city institutions.
The letter says such investors are excluded from the majority of IPOs via the London Stock Exchange (LSEG.L), giving the Hut Group (THG.L), Dr Martens (DOCS.L) and Moonpig (MOON.L) as recent high-profile examples.
“For too long, UK listings have been the preserve of financial institutions and we urge you to consider the rights of retail shareholders in relation to IPOs,” the letter said.
It suggested this could be in the form of a consultation with part of this debate being around whether there needs to be a regulatory obligation on companies coming to market to consider a retail element to their IPO.
“Currently there is a danger that this only happens when the company and its advisers suspect there will be weak demand for the IPO,” the letter said.
Noting that regulatory change will take time, the CEOs said they are also calling on the boards, chairs and CEOs of companies considering listing on the LSE, to ensure a proportion of the shares offered through their IPOs are made available to UK retail investors.
“Ultimately it is the boards of companies that control whether their IPO is open to retail investors, but they are currently discouraged to do so by the sponsoring investment banks,” it said.
The letter noted that between October 2017 and October 2020, private investors were invited to take part in just 24 out of 352 IPOs, which means they were excluded from 93% of share launches.
“That needs to change. 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,” it said.
It added that opening an IPO to retail investors is now a standardised process which is fully compliant with the FCA listing rules and requirements of the London Stock Exchange.
It pointed out that having a retail offer as part of their IPO will get businesses access to an additional source of capital and can generate increased demand for the IPO
It also said it can also help raise the profile of the business create a healthy shareholder base as most retail investors are long-term holders via pensions and ISAs, and supportive of management, creating shareholder diversification and pricing stability.
Meanwhile an Interactive Investor survey of 2008 website visitors between 8 and 9 February 2021 found that around 80% of DIY investors felt private investors should have access to all IPOs.
While the majority of respondents think investors should have the right to invest at IPO, whether they actually would do so themselves was more mixed.
Close to half of all respondents (46%) said they would rather participate in an IPO from the outset, but a further 38% would rather wait and see how things pan out after IPO.
After January saw the best month for global IPOs on record, over a fifth of respondents (22%) fear there is an IPO bubble, while the same number (22%) think there isn’t a bubble, and 57% don’t know.
Richard Wilson, CEO of Interactive Investor, said "retail investors are able to make grown-up decisions about the companies they invest in and should never be taken for granted. It is short-sighted for companies to deny them opportunities on the same terms as institutions. One day, these companies might come to rely on smaller investors.”
2021 is turning out to be a big year for IPOs in the UK with companies looking to make the most of stock market optimism amid a global effort to rollout COVID-19 vaccines.
Online greeting card retailer Moonpig saw its shares surge 25% earlier this month as it made its £1.2bn stock market debut and Dr Martens launched on the stock market with a £3.7bn valuation.
Food delivery company Deliveroo could be announcing its plans to float on the stock market early next month, hoping to raise more than £2bn.
Charles Bond, partner at Gowling WLG law firm, had noted that "we are seeing an encouraging increase in new enquiries for floats in London, both from domestic and international businesses, and it seems investors are now ready to engage fully with the capital markets again."
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