UK hedge fund
The decision reflects a shift in interpretation of UK listing rules, which previously placed limits on the concentration of assets in listed funds. A queue of similar issuers are hoping to follow in Brevan Howard’s footsteps.
The flotation of the infrastructure assets of venture capital company
From the start, there were questions surrounding the BH Macro float given the presence of key man risk, although investors were given comfort by the fact that former Credit Suisse trader Alan Howard is responsible for just 20% of the fund.
Both transactions finally crossed the line somewhat short of expectations. BH Macro priced a €770m transaction from initial guidance of a €1bn deal size, while 3i Infrastructure completed its deal at the bottom of €700m–€1.3bn guidance.
One of the biggest investor concerns has been the poor trading of such deals in the immediate aftermarket and, true to form, 3i Infrastructure went on to trade through NAV, dropping to a low of 97.25p on its debut from a 100p issue price.
BH Macro, on the other hand, enjoyed a strong debut, with all three tranches seen trading at or slightly above offer price throughout the first trading day, while 3i Infrastructure continued to languish.
By offering shares in euros, sterling and US dollars, BH Macro attracted a wider investor base. The final result saw a total of 82.8m shares issued. The strongest demand was for the dollar tranche. A total of 10.5m shares were sold in sterling at £10 per share, 27.2m euro denominated shares were sold at €10 each and the dollar tranche saw a total of 45.1m shares sold at US$10 apiece.
“Given the market conditions, the final €770m deal is a very good result and with the greenshoe, that could be increased to €850m, which is not too far away from the €1bn equivalent that the company was eyeing,” said one syndicate banker involved in the deal.
With small tickets dominating the transaction, the final roll of participating investors ran into the hundreds. Geographical demand was broad with demand from across the US, Europe and the UK, while the fixed-income nature of the fund brought in a number of Swiss accounts.
The 3i Infrastructure flotation attracted a slightly different investor base, with demand coming from across Europe and good support from the Middle East. Sole-lead manager
Most bankers continue to boost their permanent capital resources to take advantage of an expected deluge of transactions, but given the generally lacklustre results of listings to date, some are beginning to question whether the concept itself might be fundamentally flawed.
“For the general partners of a fund, permanent capital is unambiguously positive – there seems to be no reason why a fund would not want to do it, but for investors it is a completely different proposition. Most of the deals tend to trade at a discount to NAV in the aftermarket given the impact of cash drag, so it is increasingly difficult to persuade investors to come in at the beginning when in most cases they can get it cheaper in the secondary,” said one banker away from last week’s deals.
Bankers remain hopeful that the outstanding deals will go on to perform well in the longer term, which should encourage improved performance in new issues. Despite criticisms of the reduced size, bankers working on BH Macro hope that the trading debut will go some way to quelling concerns about buying the product at issue.
But with the shares trading flat to just 0.5% up on the day on very limited volumes, the performance is unlikely to bring investors rushing into future deals before such transactions hit the secondary market.
Away from aftermarket performance, the success of such transactions is relatively difficult to measure given that much demand comes as a consequence of switching out of the private fund and into the public entity.
Early expectations on the BH Macro transaction were that the deal would rely heavily on switching, but the company confirmed that more than 90% of the deal represented new money.
Many investors in the private fund chose to participate, but the majority did so with additional cash.
Debate surrounding the rationale for investors is likely to continue, but banks are not throwing in the towel just yet, believing that a combination of long-term performance and structural developments will lead to a successful market for permanent capital listings.
Even so, most recognise that only the best names will succeed and if highly regarded names such as 3i and Brevan Howard struggled, albeit against a volatile backdrop, the universe of candidates could be significantly smaller than most had expected.