(Oct 1): Initial public offerings haven’t been doing so well lately. Goldman Sachs Group Inc. says many of them might suffer longer-term headwinds as well.
Many new entrants have been employing multi-class voting share structures – including seven of the 10 largest IPOs so far this year, strategists led by David Kostin wrote in a note Sept 27. That could prevent them from being added to indexes managed by the likes of S&P Dow Jones and FTSE Russell. That would mean missing out on flows from passive investment managers tracking those benchmarks.
“Using multi-class voting to insulate management from its own shareholders comes at a significant long-term cost,” the strategists wrote. “Firms restricted from joining major indices will not fully benefit as capital flows into passive funds that now represent more than 50% of total US mutual fund and ETF assets.”