Why the Bedraggled IPO Market May Be Poised For a Comeback

Initial public offerings were doing well until 2022, when Russia’s invasion of Ukraine, recession fears, spiking inflation and Federal Reserve rate boosts squelched the animal spirits. After an anemic first quarter this year for new offerings, the second quarter’s dollar value saw a small jump that nonetheless was very encouraging for IPO investors.

With the four factors that spooked last year’s IPO market now appearing less threatening, there is more optimism about companies going public. One big positive is that, unlike in bear-market 2022, this year is blessed with a vibrant stock scene: The S&P 500 is up 15.8% year-to-date.

“As we edge closer to the second half of this year, green shoots are beginning to emerge, with the macro picture turning incrementally more constructive” for IPOs, according to a research note from iCapital, a consulting and fintech firm.

“We do see a light at the end of the tunnel,” Matt Kennedy, senior IPO market strategist for Renaissance Capital, told CNBC. “All the pieces are finally in place for pickup in the second half.” Renaissance, an IPO-centric research firm, has an IPO stock index, which is up almost 38% this year, more than twice the S&P 500’s rise.

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A lot of the current cheer stems from the success of Mediterranean restaurant chain Cava Group, which went public last month. The company’s stock doubled upon its debut. Cava went to market after twice repricing the shares above the market’s expected range. Some analysts see Cava’s success as promising for other restaurant chains, like Brazilian steakhouse Fogo De Chão, which has filed regulatory paperwork for a stock offering, while both Panera Bread and Fat Brands’ Twin Peaks have each stated their intent to issue an initial public offering in the near future, CNBC reported.

While the Q2 deal count of 23 was at the same low level as the previous five periods’ tallies, Renaissance Capital was impressed that nine of the second quarter IPOs raised more than $100 million, a category that has been underpopulated since 2021.

Also heartening for IPOs: Major companies are lining up to launch their new offerings in coming months. Among them are SoftBank Group-owned chipmaker Arm Holdings and data and marketing automation firm Klaviyo, which serves such prominent e-commerce platforms as Shopify and Stripe.

In light of the IPO market’s dizzying descent, a comeback would be most welcome. In 2021, U.S. IPOs raised $142 billion for 397 offerings, according to Renaissance. That plummeted to $7.8 billion for 71 deals last year. This year’s first quarter was also dispiriting, with just $2.3 billion for 29 IPOs, and the second quarter had $6.7 billion on 23 debuts. Cava Group’s success, however, may augur a different story for the rest of the year.

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Tags: Cava Group, iCapital, initial public offering, IPOs, Renaissance Capital, S&P 500, SoftBank

The New York State Common Retirement Fund committed more than $3 billion in investments in May, including a $1 billion investment in an opportunistic return strategies fund, according to its monthly investment report.

The $1 billion investment went to the Khosla Ventures Excelsior fund, managed by Khosla Ventures, described as an evergreen fund investing parallel to Khosla Ventures’ flagship funds over multiple vintages. Menlo Park, California-based Khosla Ventures, founded by and named after Sun Microsystems co-founder Vinod Khosla, is a new relationship for New York Common.

The pension fund also committed more than $720 million within its real assets portfolio to two funds. The NYSCRF earmarked $450 million for the EQT Infrastructure VI fund managed by EQT Fund Management. The fund seeks to invest in infrastructure and infrastructure-like assets, focusing on the digital; energy and environment; transport and logistics; and social infrastructure sectors, with a focus on Europe, North America and, to a lesser degree, Asia-Pacific.

Another 250 million euros ($271.4 million) were committed to Antin Infrastructure Partners’ Antin Infrastructure Partners V Fund, a closed-end fund targeting infrastructure investments in the energy and environment; telecom; transport; and social sectors, with a geographic focus on Europe and North America. The commitment to Antin Infrastructure Partners marks a new relationship for the pension fund.

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The pension fund also allotted $500 million within its credit portfolio to two funds managed by Golub Capital. It will invest $300 million in the Golub Sapphire Fund, a separately-managed account targeting opportunistic investments primarily in credit and credit-oriented instruments. The fund’s stated investment objective is to produce a blend of current income and principal appreciation, with an emphasis on capital preservation.

The other $200 million allotted to Golub Capital will go to the Golub Emerald Fund, also a separately-managed account targeting opportunistic investments in credit and credit-oriented instruments. The Emerald Fund will co-invest alongside the GEMS Funds and the Sapphire Fund. Golub Capital is also a new relationship for the pension fund.

Within its real estate portfolio, the pension has earmarked $300 million to Waterton Associates’ Waterton Residential Property Venture Fund, a closed-end commingled fund focused on acquiring and operating value-add apartments. It aims to invest in a balanced portfolio of value-add apartments located in the top 30 to 40 metropolitan statistical areas in the U.S., based on population. Waterton Associates is also a new relationship for the pension fund.

Another $240 million was committed within the pension fund’s private equity portfolio to four funds. The NYSCRF will invest $150 million in the TowerBrook Investors VI fund from TowerBrook Capital Partners. The pension fund described TowerBrook as a generalist investor that will seek to deploy capital in control-oriented investments based on the relative attractiveness of opportunities. The investments will mainly be in North America and Europe.

A further $50 million will go to the TowerBrook Empire Opportunities fund, which will invest additional capital in co-investment opportunities alongside the TowerBrook Investors VI fund. Some $25 million is going to Insight Partners’ Insight Vision Capital II fund, which will seek investments in early-stage technology funds, mainly in North America. The remaining $15 million in private equity will go to the Armory Square Ventures III fund from Armory Square Ventures. The fund will target software and tech-enabled businesses, primarily in New York state.

In addition to the more than $3 billion in commitments made during the month, the pension fund also cashed out of the Morgan Stanley Emerging Markets Fund within its public equity portfolio. At the time of liquidation, the account was valued at approximately $573 million, which was allocated to cash.