Wealth Managers Must Prepare For Record-Breaking Liquidity Event

Tom Burroughes

8 May 2014

It promises to be by some distance one of the biggest initial public offerings from a tech firm – or any business – on record. , the Chinese online marketplace, has this week filed for what may be the largest IPO in US history. Let's hope wealth managers have already figured out how to tap this veritable Niagra Falls of a liquidity event.

The fact that the IPO is due to be held in the US, rather than a market closer to its Asia home in Hong Kong, has already stirred debate about whether Hong Kong policymakers are doing enough to make the jurisdiction a place of choice. With that in mind, this publication asked Wealthmonitor, the firm that tracks liquidity events such as IPOs and business sales, to crunch some numbers.

Hong Kong could use some big-ticket names to use as its IPO market of choice. Data shows that between 1 April this year and 1 October 2013, there were a total of 64 IPOs on the Hong Kong Stock Exchange, together with a total offering size of $15.37 billion; over the same period in New York, by comparison, there were a total of 96 IPOs with a total offering size of over $32 billion, more than half of the Hong Kong figure. In the period from October 2012 to April 2013, there were 25 IPOs in Hong Kong with a total offering size of $6.281 billion. More impressively in Hong Kong, in the whole of 2010 – just three years after the financial market crash, there were 97 IPOs with a total offering size of $37.2 billion. What all these figures show is that firms can be fickle in where they want to hold IPOs; no market can take its status for granted.

According to Bloomberg, which has produced estimated market values for Alibaba, a reason why Alibaba’s chose Uncle Sam rather than Hong Kong to file for its IPO is because the firm wasn’t able to persuade Hong Kong regulators to change rules to give founder Jason Ma and other executives a unique way to control the company. The news service said Alibaba in a filing this week set out a governance structure that allows a group of 28 partners to nominate a majority of its board, with shareholders able to vote on the nominees.

Ma’s ascent to running a business that could, according to reports, raise up to $20 billion in an IPO is a story to rival the 1990s tech boom or the more recent – and initially difficult – IPO of social media giant Facebook. In the latter case, analysts predicted that the Facebook IPO would create several dozen millionaires – a bonanza not just for them but for the wealth management industry eager to build a pipeline of new clients.

In fact, data from Bloomberg shows that if the IPO – the date for which hasn’t been finalised at the time of writing – raises as much as $20 billion, it will top a $19.8 billion float from Visa in 2008.

Whenever it goes ahead, the IPO of Alibaba is sure to create a media and market stir, and raise the prospect, if it is successful, of other Chinese firms taking the stock market route. As the details of this affair suggest, Hong Kong regulators may need to revisit their rules to ensure they keep up with Wall Street for a slice of this business. As for wealth managers, they will hope that wherever a business chooses to hold its IPO, that the newly enriched owners of such a firm have their number.