A record period for stock market listings is good news for wealth managers as it produces a new population of high net worth individuals.

US initial public offerings – important liquidity events that wealth managers track – surged in the first half of 2021 to reach $171 billion, beating the 2020 record of $168 billion, Reuters reported, citing Dealogic figures. Dealogic confirmed the figures to Family Wealth Report.

Part of the big rise in IPOs has been fueled by the launches of special purpose acquisition companies (SPACs), which are listed shell companies that raise cash with the sole purpose of merging with a private company within two years of the listing. The process takes the private company public. Family Wealth Report has interviewed a variety of firms, such as Citi Private Bank, about their involvement in this space. (See here.)

High corporate valuations, boosted by central bank money printing before and after the pandemic, have helped fuel the IPO rush.

A number of new firms are slated to make a stock market debut this year, such as China's largest ride-sharing company Didi Chuxing Technology, online brokerage Robinhood Markets and electric-vehicle maker Rivian Automative.

Excluding proceeds from SPAC IPOs, traditional listings of big names, including South Korean e-commerce giant Coupang, have amassed $67 billion this year, keeping 2021 on track to be the biggest year for such IPOs, the Reuters report said. 

The average one-day gain for US IPOs so far this year is 40.5 per cent, compared with 28.2 per cent during the same period in 2020 and 21.7 per cent in 2019.

The SPACs story has become a wealth sector talking point. The winning formula for SPACs is that buyers have a 20 per cent stake in the financing vehicle at a low cost, which turns into a big stake in the target company after a merger. Sellers can go public without the hassles and restrictions of a traditional IPO. It remains to be seen whether the SPAC structure will work in the US Registered Investor space, given that the M&A market there is already strong.

One consideration to bear in mind is whether a rule change will affect the SPAC drive, such as a scheduled adjustment to the New York Stock Exchange’s direct listing rules. The new rule, approved by the Securities and Exchange Commission in late December, will allow companies to raise fresh capital through direct listings as opposed to just selling existing shares. Under the change, companies can raise cash from retail investors as well as by selling existing shares of the company. Commentators have said this might reduce demand for a SPAC or traditional IPOs.