Threadneedle Investments head of UK equities Simon Brazier has raised concerns that a “significant majority” of companies preparing to float on the stock exchange stand to lose money for investors.
There has been a flurry of IPO announcements in recent weeks, including Poundland, Pets at Home and online food delivery service Just Eat.
However, while not mentioning any specific names, Brazier, who manages the £1.6bn Threadneedle UK, sees potential for losses.
He says: “There are some interesting companies coming to the market and if they come with the right valuation we would be interested in investing in them.
“Having said that, in the wave of IPOs, a significant majority do not fulfil the long-term quality criteria we would need to see before investing. Within the flood of IPOs we are seeing, a significant majority will probably lose investors money.”
Brazier has invested in two recent IPOs where valuations met his long-term criteria: theme park owner Merlin Entertainments and Royal Mail. Brazier owns 5 per cent and 3 per cent of each company respectively.
Charles Stanley Direct head of investment research Ben Yearsley says: “There is always a danger with IPOs and it all depends on pricing and market conditions.
“You do not want to bring companies to the market that then plummet. IPOs also have to be able to offer investors something. But this is the kind of decision you pay a fund manager to make and to identify which IPOs will succeed and which will not.”