Using the Internet to market a fund's initial public offering could become widespread if the success of Merrill Lynch's Internet Strategies Fund IPO is indicative of the efficacy of the strategy.
The fund raised $1.1 billion in a two-week period thanks in part to an Internet "virtual roadshow" that broadcast interactive video and audio conferences to 14,000 of its financial consultants.
Internet roadshows have become commonplace for IPO's in other industries but are relatively new in the fund industry, according to Sherry Manno, a spokesperson for Yahoo of Santa Clara, Calif.
"It's definitely a product that is starting to branch off into other industries like mutual funds," she said.
Yahoo's company, NetRoadshow.com, produces online roadshows for companies going public. In January, the company handled the IPO of Matthew International's Asian Technology Fund, the first fund IPO offered to investors exclusively over the internet, Manno said.
Merrill Lynch is the largest company to date that has marketed the launch of a mutual fund with a virtual roadshow, according to Steven Miyao, senior vice president of kasina LLC, an electronic commerce consultant in New York.
In November, Charles Schwab of San Francisco was issued a so-called "no-action letter" by the SEC allowing it to provide its customers and advisors access to other companies' virtual roadshows.
While it is difficult to determine what portion of the funds raised was attributable to the Internet roadshow, it was clear that Merrill's financial consultants welcomed the approach, said Dennis Reens, managing director of Merrill Lynch Asset Management Group of San Francisco. And, the roadshow made good practical sense, Reens said.
"We wanted to do this quickly and we knew the Internet was a hot property and catching a lot of flows in the industry," said Reens. "With the thought of this being a high-tech fund we thought, Let's use the technology the fund represents. Let's do a virtual roadshow.'"
Merrill's launch of the Internet Strategies Fund was unique not just because of the virtual roadshow. The fund's IPO also was preceded by a technology conference with several speakers from technology-based industries. The presentations and speeches were broadcast live over the company's intranet and could be viewed by consultants on their PC screens. Highlights of the speeches and the presentations were used in the virtual roadshow.
Since the fund had a short offering period, time was a determinant in the decision to use the virtual roadshow.
"The traditional way to have a roadshow is to get on an airplane and try to hit as many geographic areas for four to six weeks," said Reens. "Clearly, we didn't have a lot of time."
Cost was another factor in Merrill Lynch's decision to try a virtual roadshow.
"Taking a senior vice president who is the portfolio manager for five funds and who is managing $5 billion and to drag him away for two and a half weeks is not wise," Reens said. "Plus you have airfare, car rentals, hotels and other expenses."
Mutual fund companies that use the Internet to market a fund's IPO can expect quicker market penetration, according to Miyao.
"They can reduce their cycle by about three or four weeks by doing this," he said. "They can reach many more investors in a shorter period of time."
While virtual roadshows will become more commonplace in the industry, they will not eliminate the traditional roadshow because stronger business relationships can be established through face to face meetings, he said.
"People can access all of the information at their leisure," he said. "(Virtual roadshows) won't replace personal interaction but they will complement traditional roadshows."