How to assess an IPO
As a hedge fund PM how do you assess whether or not to invest in an IPO? What parameters / factors do you look at?
Obviously the stock doesn’t have trading history so it is a bit more risky..?
I know some funds don’t invest in any IPO.
Can you do any hedging with IPO?
In general, is it just better to buy from secondary markets than from an IPO?
I work on the sell side and know HFs look at fundamentals during roadshow / PDIE etc.
But curious as to how HF PMs view IPO as an “asset class” vs say stocks with at least 3 years of trading history
Prove me i'm wrong, but ipo/ecm is low edge trade at HF. There are ppl out there who is very sizable and making lots of money in the ECM strategy, but i said it's low edge because the investment decision is 80% based on bookbuilding color....
Over time, it is among the highest sharpe strategies. There is ability to generate alpha (understanding market dynamics and book color is one) but alternative beta to that asset class is also attractive if you can find it.
High sharpe = deploy money at market open, and in the 1st 10min or so you are fully exited already lol. 10min to 1day risk exposure…
High turnover and short duration. Sure. But that doesn’t change return profile.
a lot of it might be down to investor interest. Something like SG is popular nationwide and can lead to an overvalued IPO and large rallies. while other smaller market deals with have less prospects or untrustworthy management might not be the best investment.
How exactly do you evaluate an IPO due to a complete lack of trading history?
Seems purely driven by fundamentals and book colour?
mb
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