LSE defends City in floats blame game

CONCERNS that fund managers are overpaying for newly-listed shares and investment banks are charging extortionate fees are unfounded, the London Stock Exchange said yesterday, in a report recommending improvements to the IPO market.

On a series of key areas, from pre-IPO engagement with the investor community and investment bank fees to the number of banks working on floats, the LSE found the UK compared favourably to counterparts such as Nasdaq OMX, Hong Kong and NYSE Euronext.

But there has been public friction between IPO participants this year and the LSE suggested changes such as greater transparency over fees paid to investment banks, and a longer window for issuers to engage with investors, to improve the market’s working.

Tracey Pierce, the LSE’s director of equity primary markets (pictured), denied that concerns over valuation and pricing were hurting London IPOs. “Even in difficult market conditions this year the IPO market performed better than in 2010, with 67 listings,” she told City A.M.

“It is not putting people off but I think we want not to be complacent and to address these issues.”

Using data from Dealogic, the LSE said about 68 per cent of London IPOs traded above their offer price a year after listing in both 2010 and 2009, compared with less than 60 per cent in New York and Hong Kong.

“The issue about pricing and valuation has been driven in part by… a concern that banks give companies unrealistically high valuations in order to win their business,” the report said. “It is concerning that this belief appears to be widespread among investors.”