00:00Let me start with a question on the largest IPO in world history. Joseph, I'll put it to you.
00:05Is this, you know, just your typical IPO in extra large size or is this an entirely new asset class?
00:14IPOs generally we think are definitely an asset class. I mean, SpaceX is a huge deal. It's just one of
00:21a series of very large IPOs.
00:23We have had those in the past. It just constitutes cycling the market whereby, you know, the market is open.
00:30The golden age of IPOs is here and here goes these unique opportunities for investors to jump into the market
00:37again.
00:37Matt, what's your take on this company that's going to trade at, I don't know, 100 times sales?
00:45It's not going to make a profit for many years. Is it a flashback to what we saw in the
00:50dot-com bubble?
00:51Because it's not an NVIDIA.
00:54It is certainly not. I think that, you know, the technology is a decade ahead of the competition.
01:00The company has completely reshaped the commercial space economy.
01:04It's taken some very big swings, rocket development, global internet.
01:08But that price tag, it is very steep.
01:11In order for this market cap to make any sense at all, you really need to go out to 2028,
01:162029, 2030.
01:18It looks like they've got a decent track record of success, but, you know, really, really have to bank on
01:24those 2030 numbers.
01:25Have you ever seen an IPO like this, Matt? I mean, they've got no range.
01:29They came out with just a price.
01:31They're going to have immediate retail ownership in that they'll be in the Nasdaq 100 likely within 15 days.
01:43They're going to have an amplified weighting, even though they have such a small float and they don't make any
01:50money.
01:50Does that make sense to you?
01:53This deal is completely unprecedented in a number of ways, and I would even say systematically important.
01:59I mean, just for the IPO market.
02:01For the past couple of years, the IPO market has felt a little bit like Lucy pulling the football away
02:06from Charlie Brown just as he goes to kick it.
02:08A lot of starts and stops.
02:09But now I think there's widespread anticipation that with the biggest IPO of all time, maybe once and for all,
02:16we can get the IPO rebound kicked off and see, you know, other names in the pipeline that we've been
02:21looking for.
02:22Anthropic, OpenAI, a dozen others.
02:23Joseph, what do you make of, you know, just the sheer size of this is a little bit daunting.
02:28And if you look at the biggest IPOs that we've seen go public in the last five or six years,
02:35they don't have a very good track record for the retail investor that buys in the first few days.
02:40In fact, the average drawdown from peak to trough of the top 30 IPOs by size is 55 percent.
02:50Yeah, I think in the short run, you know, fundamentals won't matter for SpaceX.
02:55It's going to be totally sentiment driven.
02:57We will be looking for the news flow.
02:59Over the long run, we're going to see a big skew.
03:02It may be underperforming.
03:05The way we approach it is really a broad basket of IPO investing, 100 names.
03:10We pull IPO spin-offs, D-SPACs together.
03:13SpaceX initially is going to make one or two percent and then we'll see.
03:17From an IPO investor's perspective, we see most, the best returns really in the U.S. domiciled, non-sexy names
03:25like ULS and so forth.
03:27And that's, I think, what the message for investors is.
03:30Don't really over-focus on SpaceX.
03:32Look really for the opportunities in the broader IPO market, just like the way we do it.
03:38I mean, you have essentially pioneered IPO indexing, Joseph.
03:42But this SpaceX issue is completely different from the other 99, is it not?
03:50It is not that different.
03:54We had Saudi Aramco going public with a float of 1.5 percent.
03:59Again, like it's an outgrowth of the equity capital markets and the IPO activity is reflective of that.
04:06It's all good in our opinion.
04:08What we will know at the end of the day, 8 out of 10 companies will likely underperformance and there
04:15will be this one or two companies which will do extremely well.
04:19And then the rest, you know, some are going to be trading with the S&P 500.
04:24So investors need to be aware of those issues.
04:28I think one issue, obviously, with SpaceX and OpenAI and so forth is going to be this secondary supply coming,
04:35which we estimate to be, you know, $1 trillion just to get to the average IPO over time.
04:42And I think that's significant.
04:44So it's a big fee pool for the investment banks.
04:47But I think it constitutes a potential risk, especially if the companies won't deliver on their fundamentals.
04:54Matt, Joseph makes a great point.
04:56We're going to see when lockup periods end, another sort of round of forced buying for index investors.
05:04How does this work out across the AI spectrum?
05:07I mean, we're going to have OpenAI.
05:09We're going to have Anthropic.
05:10They will also likely be trillion-dollar IPOs that are going to have a component of forced buyers.
05:17Yeah, I think we are going to see that tug of war, the push and pull between the lockups expiring
05:23and then the forced buying from the indices.
05:25I think that from an investor's perspective, it's probably not a good time to buy on day one your entire
05:31position.
05:32Best to spread out those purchases over several months.
05:34So just to echo what Joseph was saying and really not just own only the big names either.
05:40A lot of the smaller deals can really drive performance.
05:45Does it matter, Matt, that they don't make money?
05:48I mean, Joseph used Aramco as the analog, but Aramco essentially prints cash.
05:55Whereas this company, OpenAI, Anthropic, they are subsidizing AI usage, which brings with it billions of dollars in losses.
06:08Yeah, I mean, the losses are a lot to stomach, there's no question.
06:12I think with SpaceX, you are already seeing some of those gains from the AI CapEx with the Google deal
06:17and the Anthropic deal.
06:20But, yeah, you have to really believe in the long-term vision of the company and stomach those losses in
06:26the near term.
06:27And it's not going to be – I could see it not being pretty.
06:30But at the same time, I think volatility is kind of the price of admission here.
06:35Joseph, I'm curious what kind of rules you would have to include an IPO in your index or in any
06:42number of indexes.
06:43Because an IPO index can inherently not have seasoning, because so many IPOs are companies that don't yet make money
06:53or even generate positive free cash flow, do you need a set of standards to decide what to include and
06:59what not to?
07:02So we look at initial returns and also this initial pop.
07:06I think it's a problem and it's several hundred percent.
07:09So we look at float as well, initial market cap.
07:12What we find really what matters is a quarterly rebalancing process down the road.
07:18And it also matters how long you define an IPO window to last.
07:22A lot of fund managers would think the IPO effect is over after one or two months or one or
07:28two years.
07:29We really have pioneered a long-term thinking about IPOs, which is around a four-year, five-year presidential cycle
07:36kind of window.
07:37And if you define this type of long period of time, you have tremendous investment opportunities coming because you deal
07:45with large IPOs by default,
07:49but also IPOs which can become large over time, like a Tesla.
07:54And these are the interesting momentum companies such a strategy actually can get you into.
07:59Absolutely.
08:00Matt, let me finally ask you about the scale of these three mega IPOs coming to market.
08:05It could be $4 trillion in market cap.
08:08Can this market handle that kind of liquidity demand?
08:13I think so.
08:14Based on what we've seen in private markets, you know, tens of billions of dollars being raised privately.
08:20I think if private markets can support it, public markets can too.
Comments