Small funds trail large AMCs in IPOs

Top 5 have put in 55% of the Rs 2,900 cr from anchor investors in these public offerings since early 2015

Size has proved a hurdle for small fund houses wanting to invest in initial public offerings (IPOs) of equity. Some of the top mutual funds (MFs) did participate in recent offers as anchor investors but their smaller counterparts largely stayed away - and, not always by choice.

Since January 2015, MFs have invested Rs 2,900 crore as anchor investors in IPOs, says Prime Database. Of this, the top five contributed nearly 55 per cent, with ICICI Prudential MF (Rs 355 crore) and HDFC MF (Rs 351 crore) investing the most. Canara Robeco MF, Motilal Oswal MF and BNP Paribas MF are the only funds with total assets under management of less than Rs 10,000 crore each to figure in the list of anchor investors. Between them, the latter three funds invested Rs 55 crore in five IPOs.

Companies opting for a public share sale prefer marquee names as anchors, say experts. Investment bankers also gravitate to selecting larger asset management companies (AMCs), as their institutional divisions get a larger portion of revenue from servicing these. MFs transact through institutional brokers to buy and sell stocks, and pay brokerage on the transactions, typically 10 to 20 basis points.

"Anchor investment is all about garnering money in quick time and many investment bankers might feel it's not worth their time to court smaller funds as anchors because of their small book size," said Dhirendra Kumar, chief executive, Value Research, an MF tracker.

Anchor investors are institutional investors who subscribe a day before an IPO is thrown open to the public and have to adhere to a 30-day lock-in. Experts say it is difficult for fund houses with equity assets below Rs 2,000 crore, to participate as anchors, as it might result in them allocating a disproportionate amount to an IPO. Large funds have no such issues. Also, since the latter typically manage multiple equity schemes, they can invest as anchors through more than one scheme.

Of the 30-odd funds outside the top 10, ranked on overall assets under management, 20 had equity assets of less than Rs 2,000 crore each, as of March 13, Value Research data showed. In contrast, the top 10 funds had equity assets of Rs 8,700 crore to Rs 49,000 crore.

Some small fund houses believe the anchor investment process is discretionary and there is no science to the allotment process. In fact, one such house plans to soon raise the issue with the regulator, Securities and Exchange Board of India.

"Unlike the allotment for qualified institutional buyers (QIBs), the process of selecting anchor investors is not transparent and the larger AMCs have an unfair advantage," said a senior official of a small fund house, which had applied for anchor allotment in two recent IPOs but was overlooked both times.

While small funds can apply in an IPO through the QIB route, the disadvantage is that the fund might get a lesser number of shares than it bid for if this portion is over-subscribed. If it decides to buy the shares through the secondary market, it might lose on sizable initial gains, particularly on quality issuances.

Prior to 2005, the allotment to QIBs was on a discretionary basis. The norms have since been amended and shares are now allotted on a proportionate basis to all categories of investors, whether QIBs, retail (small) or non-institutional.

Nearly half the 32 companies that have listed since 2015 ended with double-digit listing gains.