06 OCT 2023

Investor appetite on the rise as IPO market reopens

More than half of the investors surveyed in Goldman Sachs’ Bi-Annual Equity Capital Markets Survey said that they are more bullish than they were a year ago. While 46% of investors believe the recession outlook for this year and the first quarter of 2024 is still uncertain, a growing number of investors (41%) are planning for a soft landing — and sentiment is shifting accordingly.

David Ludwig, global head equity capital markets (ECM) in Goldman Sachs Global Banking & Markets, sees signs of a “soft opening” in the IPO market, with scope for offerings to pick up and broaden in the coming months and quarters. “Investor confidence has definitely been improving over the course of the year,” Ludwig says on a recent episode of Goldman Sachs Exchanges. But he also notes the progress won’t be linear, with pockets of strength and weakness along the way.

The survey, which took place in September, included mutual funds, hedge funds, family offices, pensions, crossover funds, and sovereign wealth funds.

“I think the macro backdrop has been on our side all year,” says Tony Pasquariello, global head of hedge fund coverage in a recent episode of The Insight. “The story of the year, to my eyes, has been the ongoing durability of the US economy and the ongoing supremacy of US mega-cap tech companies. Now I think that's allowed for you to bring to market high-quality companies who are ready at this point in the cycle.”

Reopening the IPO Market

Risk appetite for IPOs is increasing

With IPO activity picking up since the start of September, our ECM team has observed several key themes that are driving a more robust market: extensive early investor education, differentiated go-to-market strategies, anchor investor support, strong financial profiles, and thoughtful tactics to navigate a recovering market successfully. As more issuers come to market, IPO activity will gradually become more consistent across sectors.

Issuer and investor sentiment is improving in parallel, with more than half of survey respondents reporting a high-risk appetite for IPOs in in the last quarter of this year and the first quarter of 2024.

Investors are focused on valuation and price

Valuation continues to be a primary driver for investors. According to survey participants, a 15-20% discount compared to publicly traded peers is appropriate when accessing new IPO opportunities. However, some investors (43%) believe current public market valuations remain high based on current trading performance.

Although investors remain focused on pricing dynamics in the secondary market, liquidity is also a key factor as investors look for ways to build positions in sponsor and VC-backed assets.  

“The last 18 months have been challenging from a macro perspective,” says Lizzie Reed, global head of the equity syndicate desk, “but the continuation of opportunistic primary raises, secondary monetization from sponsors and corporate holdings — plus an uptick in convertible offerings — have begun to meaningfully shift investor sentiment and overall market health.”

Reed adds, “The largest driver of the ECM market in the coming months is the IPO market — and that market is open.”