It’s usually hard to identify which particular financial sector innovation represents a game changer or even a significant milestone, but the creation of a technology that allows you to bid directly for stock in an Initial Public Offering (IPO) from your phone has to stake a solid claim.
I’ve been following the OnMarket BookBuilds crew since they launched their first technology in 2013, led by Ben Bucknell and Rosie Kennedy.
But I had to stand in awe of their apparent canniness in snaring Prime Minister Malcolm Turnbull to launch their new OnMarket product on October 7 last year, just 22 days after becoming Prime Minister.
The explanation for the coup is a bit more prosaic: he’d agreed to do it while he was Minister for Communications and after his ascension he kept to his side of the deal, well aware that launching a worthwhile innovation in the financial services space lined up perfectly with his upbeat message about accepting the challenges of the future rather than fearing them.
I left The Australian newspaper in November after a 35 year career that took in financial reporting and stockbroking, and have since been working with OnMarket BookBuilds to spread the word about a system that allows anyone with a mobile phone to buy into an IPO.
And there are millions of potential takers. According to a 2014 ASX Share Ownership Study, there are 6.5 million direct investors in the ASX and another 2.5 million so-called ‘aspirational investors’ that are looking for an opportunity to get their feet wet.
Contrary to popular mythology, IPOs have a got an excellent record in Australia in recent years. Blame some spectacularly unsuccessful, large cap private equity exits such as Dick Smith for skewing the public’s perception about the risks in participating in IPOs.
Accountants HLB Mann Judd recently reported that the 85 new IPOs listed in 2015 closed the calendar year with an average price rise of 10 per cent since issue, versus a two per cent reduction in the ASX200 index. They also noted that a solid 69 per cent of the new floats closed trading on their first day above their issue price.
The challenge, of course, is now to get these investment opportunities to everyone rather than to just the closed-circuit of institutional investors for whom these opportunities have traditionally been reserved.
Even more encouragingly, the seven IPOs which OnMarket technologies brought to market over the same period finished the year up an average 42 per cent. Even the negative market in January will still have left those IPO investors well ahead overall.
On Market’s particular selling point is that investment opportunities they make available are open to anyone, whether or not they have an account with a broker.
If investors have a broker their stock will be held under the CHESS system with their Holder Identification Number (HIN), but if not, the stock sits on what’s called the Issuer Sponsored Register under a Security Reference Number (SRN). They can still trade the shares.
While we all know that markets can go down as well as up, as the disclaimers traditionally put it, that 42 per cent lift is something to think about in a market where most of the pundits are making Cassandra-ish noises about adverse business conditions, shrinking dividends and slow growth. For a lot of big companies, that’s certainly true, but for smaller companies with a solid business plan, that’s more of an opportunity than a hazard.
Of course not all IPOs take off in a way that makes the category a “cert” for investors, but a spread of IPO investments takes much of the risk out and looks a great deal more inviting, in return terms, than either blue chip equities or fixed interest offerings. Bank deposits, meanwhile, only appeal on the basis that you get very slightly more than your original investment back.
Joining a fintech leader in times like these appears to be an interesting move on my part. Technology, with its disruptive prowess, is infecting more than just equity markets. Given my affinity for companies whose mission it is to empower investors and make the markets fairer and more efficient, I’m looking forward to the conversation with ShareCafe readers about equity investing and equity market dramas that we will no doubt see our fair share of in the coming year.
