You can experience thrills (and spills) of a company float
THE army of small investors is growing fast, as more younger people take up share trading. But are these recruits – who see the markets as the way to make the most of their savings – ready for a major inequality in the system that could thwart them in this aim?
Nowadays, private investors are almost always excluded from IPOs, the initial public offering of shares. Only institutions can apply, denying ordinary people the thrills and spills of subscribing for shares before flotation.
As was revealed last week, UK stock market rules are to be liberalised in what has been dubbed a new Big Bang, after the City upheaval in the 1980s.
The aim is to bring more Spacs (special purpose acquisition companies) and technology listings to London which is seen as overloaded with ‘old-economy’ stocks such as banks, miners and oil companies. But these plans will not automatically allow private investors to participate in all IPOs. There was merely a call for consultation on a change.
Disappointing. You might be intrigued by rumours that a number of companies are about to make their London debut, such as Darktrace, the cyberspace security specialist, Wise, the payments group and Trustpilot, the ratings site.
Exclusion from these IPOs would add to the discontent over the way private investors were shut out from the IPOs of bootmaker Dr Martens, greetings card company Moonpig and THG, the online retailer. At one stage on the first day of trading, shares in THG, known for its Look Fantastic cosmetics website, leapt to 658p. This was 32pc above the offer price.
Richard Wilson, chief executive of Interactive Investor, one of the platforms campaigning for reform, said: ‘For too long, retail investors have been treated like second-class citizens by UK plc and the City institutions.’ Private investors will be cheered by this support. But more immediately they will be wondering about the wisdom of investing in tech, even if they are permitted to do so, in the wake of the recent turmoil in the sector before its fightback this week. The fall was triggered by fears that rising bond yields could trigger higher interest rates, making it less attractive to put money into tech stocks in the hope of a return from future profits. Yet even amid this reassessment of the Silicon Valley names, there is still likely to be interest in the IPOs of tech companies that provide software crucial to the operation of other businesses or that cater for the shift to online.
Take the food delivery business Deliveroo, which is set to be valued at £7bn. While former Tory chancellor George Osborne’s girlfriend Thea Rogers (pictured below) is rumoured to have a stake in Deliveroo worth £40m, ordinary investors have been unable to get hold of any shares – until now, that is!
Deliveroo believes customers could become loyal shareholders, so is allowing them to apply for up to £1,000 worth of shares through the app.
This service has been put in place by Primary Bid, the platform striving for the democratisation of IPOs.
PRIMARY Bid will also be involved in the flotation of another food delivery company, Parsley Box, which supplies the ‘babyboomer’ demographic. Who knows how long private investors will have to wait for better treatment, not only in IPOs but also in rights issues where they are frequently cold-shouldered?
In the meantime, if you are rebalancing your portfolio away from Amazon, Apple and the rest, but still looking to back innovative companies that could go public in the near future, the Chrysalis Investments trust may be worth a look.
At present it stands at a 14pc premium to the value of its assets.
Richard Watts, the manager, says: ‘We provide ordinary investors with access to entrepreneurial companies that are using their technology effectively to disrupt inefficient older businesses, who are not very good at tech and are wasting money trying to sort this.’
Chrysalis announced this week that it will be raising £240m through a rights issue. All investors will be welcome to apply, in a rare example of fair shares for all.