Mikkel Svenstrup, chief investment officer of Danish statutory pension fund ATP, is calling for better practice regarding Initial Public Offering (IPO) prospectuses in Denmark, saying potential investors are not getting the risk information they need.

The investment chief of the DKK687bn (€92bn) labour market supplementary pension fund, said on LinkedIn: “In our view, there is currently too much difference between the due diligence performed in M&A transactions and IPOs.”

In a column in Danish financial daily Børsen, penned by Svenstrup and Tomas Krüger Andersen, ATP’s head of legal within its pensions and investments department, the pair said there was a lack of good standards for how a stock exchange prospectus should be designed, and said better practices would boost appetite for new IPOs.

“There is nothing inherently wrong with listing a high-risk company – it just needs to be done on an informed basis, so that investors know what they are getting into and can set the price accordingly,” they wrote.

Risk was part of the game when it came to investing on the stockmarket, they said, adding: “But as in all other games, it is crucial that everyone plays by the same rules.”

Mikkel Svenstrup at ATP

Mikkel Svenstrup at ATP

The ATP pair said much thorough work was being done today in connection with Danish IPOs, but that some “spectacular cases” showed that prospectus liability cases could arise in the wake of IPOs.

“Neither the Danish Financial Supervisory Authority nor Nasdaq ensures that the content of a prospectus is materially correct or adequate.

“There are thus no independent parties who ensure that investors receive correct and adequate information,” they said.

In recent years, they said that from their points of view, risk descriptions in prospectuses in particular had developed in an unfortunate direction.

“The company and its advisers want to include all possible conditions to ensure that they have raised the relevant risks.

“Investors, on the other hand, will typically prefer a clear indication of the company-specific risks listed in priority order and with an indication of both the likelihood of them occurring and the actions that the company has taken to address the individual risks,” both said.

“In practice, the risk factor section has become longer and longer, and it is doubtful whether the risk sections actually make investors wiser,” they added.

There was a risk of the presentation of facts being coloured by the story one wanted to tell, they said, adding that there was an incentive to leave out conditions and information that did not fit into that narrative.

“It will be extremely unfortunate if the reality is that the investors need to do their own due diligence on the company prior to an IPO,” they noted.

Svenstrup and Krüger Andersen said that alongside other market players, ATP was happy to contribute to formulating good industry standards regarding the prospectus.

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