Updated with correction
Investors last week shrugged their shoulders over Oaktree Capital Group LLC's initial public offering.
And while some observers said Oaktree's debut issues were more about bad pricing than a reaction to the company itself, the lukewarm reception raised questions over whether the climate really has improved for money management firms to go public.
Los Angeles-based Oaktree sold 8.84 million shares on April 11, instead of its planned 11.3 million, and the pricing — $43 a share — was at the low range of what the company had estimated. The first day of trading was less than spectacular: It opened April 12 at $41 and closed at $42.35. On April 13, it closed at $41.50.
Donald Putnam, the San Francisco-based managing director of investment bank Grail Partners LLC, blamed Oaktree's problems on investment bankers' overconfidence.
“It has more to do with egotistical pricing of the IPO, than the long-term value of Oaktree,” Mr. Putnam said, adding that pricing the shares in the upper 30s would have been more realistic.
Despite the tepid response to Oaktree's IPO, Mr. Putnam believes improved markets of late along with pent-up demand from companies unable to go public during the financial crisis should spur more public offerings of asset managers in coming months.
A second test is expected. Private equity firm The Carlyle Group, which has $147 billion under management, was scheduled to begin its roadshow on the company's planned IPO this week.
The IPO should become a reality in about two weeks, said Francis Gaskins, a partner with IPODesktop.com, a Los Angeles firm specializing in IPO research.
Mr. Gaskin said strong market returns over the past few months helped Oaktree's IPO get off the ground after languishing for 10 months — the company first filed its application in June 2011 — and should do the same for Carlyle.
Carlyle's application dates to September 2011, but its plans also have been in slow motion. On April 3, the company filed an amended IPO application with the Securities and Exchange Commission disclosing it might sell 10% of the company. The company expects to seek a valuation of $7.5 billion to $8 billion.
But Mr. Gaskin, who agreed that Oaktree's pricing was too high, said Carlyle could have the same problems with its IPO if the pricing isn't realistic.
But not everyone agrees financial markets have stabilized enough for a continuing seed of new IPOs.
“If we can get back to the market of the 1990s, we will see a lot of asset management companies go public, but if the environment continues to be choppy, it may not necessarily happen,” said money manager consultant Geoffrey Bobroff, president of Bobroff Consulting Inc., East Greenwich, R.I.
Asset management firms focusing primarily on alternative and or global products would have the best shot of an IPO because that is where the bulk of the growth in inflows will be in the next five years, said Benjamin Phillips, a partner with Casey, Quirk & Associates, Darien CT., a consultant to money managers
“It would be very tough for a firm focused on U.S. equities to go public right now,” he said.
Alternative asset managers will be attractive for investors looking to gain a stake in a new public offering because of expected increased flows going forward, said Douglas Kelly, an analyst at IBISWorld, a financial market research firm in Santa Monica, Calif.
But Grail Partners' Mr. Putnam said he sees traditional money managers as better candidates for IPOs than alternative asset managers with their complicated business structures.
“When the capital structure gets too complicated — which is what always happens when big egos and alternative firms get in the middle — then the investor doesn't know what he is buying, and typically the investor loses in that trade,” he said.