Are IPOs still going to be good bets going ahead? Rahul Bhasin answers
«But if you look at 21, 22, 23, if you look at the returns, they really have not as a class outperformed the markets. In fact, I would suggest that they have underperformed markets meaningfully, even if the companies are giving you a return,» says Rahul Bhasin, Baring Private Equity Partners.
Do you think the class of 2024 IPOs is different from the class of 2021 wherein there was the frenzy, there were the fancied names, but there was also no path to profitability? Do you think first things first, we need to make that disconnect?
Rahul Bhasin: Look, I will break that up into two parts. I mean, one part is the fact that mostly IPO markets give very good returns for investors when there has been a drought of IPOs for an extended period of time and so when you are talking about 21, there probably been a lull in the IPO market for almost a decade before that and virtually IPOs had dried up and then when you start seeing IPOs, usually it is in the first year after a drought that you usually get higher quality companies.
Yes, there was an issue, an adjacency issue also and I will come to that second, but the general trend is that you will end up usually getting better returns as an investor in IPOs very early in the cycle of IPOs coming back into the market, coming back into fashion.
As that cycle matures, the returns tend to get lower and lower. Also, if you actually map the returns, generally, IPOs are when very knowledgeable insiders are paying extremely knowledgeable investment bankers who are earning fees, which
