In Schweser video it says “No participation in equity IPOs” and “Strict limits on participation: private placements”-What is the difference between the 2 and is it right to treat them differently? Thanks
I’m not sure what you mean by treating them differently - is this with respect to personally investing in offerings your company is working on? The differences is - An IPO is usually a registered offering to the public with a prospectus - thus all material facts about the company have been made public. A private placement is an offering which is made to a select number of individuals - normally sophisticated investors (retail investors are not be able to subscribe). Therefore, there is less information supplied since sophisticated investors can make there own mind up about these things.
This is my understanding, please feel free to correct me. IPOs - Analyst works for investment bank. His company is hired to do IPO, thus it’s in their interest to have a high issue price (more future business, reputation, incentive fees?). New stock issues tend to go up rapidly soon after an IPO. Thus the analyst can buy stock for himself before it goes public (putting his needs ahead of the client), and the client is left buying at a higher price. There is a breach of preference of transaction, and also material non-public information (eg the ibank knows the financials of the company). Private issue - The main difference is that it isn’t publicly traded so price won’t suddenly go up after issuance. It is harder to buy “on the cheap” before public release. Although the analyst still knows inside information before it reaches prospective investors.
Simply put, from the analyst/PM’s position, IPOs and Private Placements have personal trading restrictions and should not be treated with the same conditions as normal equity or fixed products. When all is said and done, if an issue is a restricted share amount, those shares should be allocated to clients above and beyond the requests of analysts/pms…etc.