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June 30, 1998

An IPO Aftermarket Fund

By Stephen Lacey

Also in this article

  • An IPO Aftermarket Fund

Ten years ago, an initial public offering was a rare bird. Capital was raised for corporations with high-yield bonds, revolving credit, secondary offerings and bank loans. Oftentimes, an IPO was just an afterthought.

But a remarkable change eventually occurred IPOs got hot.

According to Securities Data Co., investors pumped up to $109.3 billion into 1,700 new issues within the past two-and-half years.

Access to these potentially lucrative investments was another matter, of course. During much of the 1990s, access was limited to institutional investors and high net-worth individuals.

New Opportunity

Beginning in February 1998, however, individual investors moms and pops had a new opportunity to participate. Greenwich-based Renaissance Capital opened the door through the first-ever mutual fund devoted exclusively to the new-issues market The IPO Plus Aftermarket Fund.

"A lot of investors would love to get in on IPOs at the offering," said Linda Killian, a portfolio manager and one of Renaissance Capital's three founders. "That's the main reason we started the fund."

The fund's three managers, all former investment bankers, founded Renaissance Capital in 1991 to provide investors with an independent source for IPO research.

Now four months old, Killian said The IPO Plus Aftermarket Fund relies simply on word of mouth and does not advertise.

Even so, response has been "very enthusiastic." About 1,500 people have invested roughly $12 million, directly participating in some of the year's most successful offerings.

Moreover, access to these offerings is through some of Wall Street's largest syndicate operations, a gateway critics suggested would be difficult to traverse.

According to Killian, the fund's five largest holdings are:

*Keebler Foods (NYSE:KBL), the world's second-largest manufacturer of cookies and crackers, which debuted at $24 a share in February through a syndicate led by investment-banking giant CS First Boston.

*Steelcase (NYSE:SCS), the world's largest manufacturer of office furniture and related products, which placed 12.13 million shares at $28, through a syndicate headed by investment- banking giant Goldman, Sachs & Co.

*CB Commercial Holdings (Nasdaq: CBCG), one of the largest vertically-integrated providers of real-estate services, such as brokerage, investment management, property management, real-estate market research and mortgage banking through 107 locations. This November 1996 IPO priced 4.35 million shares at $20, through a syndicate headed by brokerage powerhouse Merrill Lynch & Co.

*E*Trade (Nasdaq:EGRP), a pioneer of the online brokerage industry. This August 1996 IPO priced 5.67 million shares at $10 1/2, through a syndicate headed by San Francisco's Robertson, Stephens & Co.

*Delia*s (Nasdaq:DLIA), a leading direct-mail retailer of apparel and accessories for teenage girls. The company's 2.35 million offering in December 1996 opened at $11, through a syndicate headed by San Francisco-based Hambrecht & Quist.

Other Holdings

According to Renaissance Capital's web site (www.ipo-fund.com), some of the fund's other top holdings include mutual-fund giant Waddel & Reed (NYSE:WDR), telecommunications provider Hyperion Telecommunications (Nasdaq:HYPT) and telecommunications-equipment company Reltec (NYSE:RLT).

The fund purchased at offering and still holds both Keebler and Steelcase. CB Holdings and E*Trade were both purchased in the aftermarket, a period defined by the fund as up to ten years after a company goes public.

Aftermarket investments, however, are confined to securities with unseasoned trading and are limited by research, float, public ownership, operating history, or relative anonymity in the U.S. capital markets.