US IPOs buoyed by world's largest sovereign wealth fund

Norway’s oil and gas is helping to fuel the nascent recovery in US initial public offerings.

Norges Bank Investment Management, the country’s $1.4 trillion wealth fund, was among three cornerstone investors touted by German sandal maker Birkenstock Holding Ltd. on Monday as it kicked off its $1.6 billion IPO roadshow. Together, these investors offered to buy at least 40% of the offering.

That came just weeks after NBIM, which is responsible for managing Norway’s fossil fuel riches, and four other investors said they’d snap up as much as $400 million of Instacart’s IPO, or roughly 61% of the deal. 

It’s part of a growing trend in the US, where cornerstone investors have historically been a less common feature on listings than in Asia and Europe. But with the world’s deepest equity market only just waking up from a prolonged period of inactivity, listing hopefuls are seeking comfort that a large portion of their stock already has reputable buyers lined up.  

“While we are beginning to emerge from a challenging IPO market, the cornerstone process continues to be seen as a useful way of derisking the pricing and execution of IPOs,” said Brad Miller, Americas head of ECM at UBS Group AG. 

EARLY LOOK

Including Birkenstock, six of the year’s 10 biggest US IPOs leaned on cornerstone investors. Ten tech companies signed up to invest as much as $735 million in the landmark IPO of chip designer Arm Holdings Plc last month. Such early votes of confidence can help drum up interest in a listing: both Arm and Instacart ended up pricing their offerings at the top end of marketed ranges. 

There are added benefits for the cornerstones, which get early access to company management, as well as the chance to receive a larger allocation, according to Josh Weismer, head of US equity capital markets at Mizuho Financial Group Inc. 

“Having cornerstone investors on the cover validates the transaction, creates scarcity value and helps underpin pricing,” said Weismer, whose bank was one of four lead underwriters on Arm’s listing. “It is a trend that has gained favor in the US and is expected to continue through the end of this year and into 2024.”

Norway’s sovereign fund — the world’s largest, according to the SWF Institute — was also active in the US listings market earlier in the year. It was lined up to invest in the June IPO of thrift store chain Savers Value Village Inc., as well as the February IPO of solar power equipment maker Nextracker Inc. 

NBIM has recently been boosted by a rebound in technology stocks after a weak 2022. It gained just under 14% on equities in the first half of the year. The wealth fund’s biggest stock holdings at the end of the period were Apple Inc., Microsoft Corp. and Alphabet Inc.

Other investors that have committed money to the year’s top IPOs include BlackRock Inc., Franklin Templeton and AllianceBernstein LP. In some cases a company’s existing investors are plowing in more money: French luxury tycoon Bernard Arnault signed up as a cornerstone for the Birkenstock IPO, while Sequoia Capital doubled down on Instacart.

Executives are now sitting down in targeted meetings at an early stage to introduce their story to prospective cornerstone buyers and hone the marketing pitch they’ll use later on the roadshow. Drumming up demand from these funds can also help ensure a coveted share-price pop on the first day of trading. 

“It remains to be seen if this is a permanent part of the capital formation process, but we would expect it to at least continue until we are in a more normalized IPO environment,” said UBS’s Miller.