My name is Mark Goodfield. Welcome to The Blunt Bean Counter ™, a blog that shares my thoughts on income taxes, finance and the psychology of money. I am a Chartered Professional Accountant and a partner with a National Accounting Firm in Toronto. This blog is meant for everyone, but in particular for high net worth individuals and owners of private corporations. The views and opinions expressed in this blog are written solely in my personal capacity and cannot be attributed to the accounting firm with which I am affiliated. My posts are blunt, opinionated and even have a twist of humor/sarcasm. You've been warned. Please note the blog posts are time sensitive and subject to changes in legislation or law.

Thursday, June 16, 2011

LinkedIn IPO- The linked get in

When LinkedIn went public on May 19th, its shares soared to $94.25 from the Initial Public Offering (“IPO”) price of $45. It has been reported the initial IPO target price was to be $32 to $35 per share, but huge demand moved the IPO price to $45. Personally, I have concerns in regard to LinkedIn’s valuation, however, that is not the topic of this blog.

On May 20th, many newspapers carried the following unattributed quote “I got 500 shares and was told to consider myself lucky,” said one hedge fund manager, who flipped his holdings in the low-80s. “There are billion-dollar institutions that are not getting any stock.”

I chuckled to myself when I read that quote, as we mere mortal retail investors are never afforded access to these IPO’s. We pay the inflated IPO price after the huge profits have been made by the investment bankers' top customers; mutual funds, pension funds, hedge funds, friends and family and other major money managers who have access to these IPO’s before they trade publicly. So, I did not shed very many tears for the poor hedge fund manager who only had 500 shares to sell for a one day profit of $20,000; although his buddies probably made $200,000 to $1,0000,000 that day, so maybe he does deserve some sympathy for his large allocation envy.

The LinkedIn IPO was typical of any hot IPO; the shares stayed within the inner investment banking circle. The rich get richer. As a capitalist at heart, I am torn between allowing the market system to work and the distaste of what I consider a "capitalistic aristocracy". Yes, I understand the risk investment bankers take and the need to reward its best customers for buying other IPO's and other products, but the bankers and their customers make absurd amounts of money on these type IPO’s.

I guess what bothers me the most is that retail investors are typically only given access to IPO’s when the demand is insufficient from the investment banker’s best customers or the IPO is considered fairly priced, so there is no easy money to be made. Sort of a don’t call us when we have a great IPO, but we will call you when we have otherwise. The above discussion does not even account for the regulations in place for accredited investors that exclude the typical retail investor, for their “own protection" in certain circumstances.

The IPO process has an inherent systemic bias that I accept, but that does not mean I have to like it.

[Bloggers note: I know my loyal reader and commentator Skuj will follow with a capitalistic diatribe on this blog; so Skuj, in my opinion you can be a capitalist and still think the system is slanted unfairly at times].

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