Taking a cue from hedge funds, more and more mutual funds are investing in PIPEs, or private investment in public entities, a recent report from Forbes.com indicates.
So far this year, mutual funds represent 22.4% of PIPE investors, an increase of more than 100% versus 2004. Hedge funds are retreating from the space. They now account for 37.3% of PIPE investors, down from 51.7% last year.
Smaller, newly public companies that need to raise cash typically facilitate PIPEs. Third parties hammer out the deals behind closed doors, which keeps the rest of the market in the dark until it's completed. The stock buy-ins are typically cheaper than market prices, too.
"An advantage of a PIPE is that an institutional investor can take a large position in an illiquid stock," said Byron Roth, chairman of Roth Capital Partners in Newport Beach, Calif., last year's dominant PIPE player.
But larger companies are starting to take advantage of the practice, which probably explains why mutual funds are chasing PIPEs, Forbes.com offered. It's also one of the few areas of the market that's making money these days.
This year's PIPE blockbuster was an $880 million convertible bond deal that the Broomfield, Colo.-based telecom firm Level 3 Communications booked in February. Major mutual fund investors included Southeastern Asset Management, Davis Selected Advisors, Legg Mason and Torray Companies.
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.