Private equity IPOs tempt investors with frequent bounce Shares in private equity-backed companies listing this year have risen 18.6 per cent, a performance that will fuel institutional investors' demand as the pipeline of planned initial public offerings grows. The weighted average performance of this year's private equity-led flotations have underperformed the other type of IPOs by 4 percentage points as of December 17, according to data compiled globally by the consultants EY for the Financial Times. However, excluding Twitter, whose stock has more than doubled since first trading in October, there is almost no difference. The gains will help to soothe the once difficult relationship between institutional investors and private equity fund managers, perceived as sophisticated, if not more aggressive, sellers of companies. Strong demand for equities - fuelled by central banks" monetary stimulus - has been the main driver for the wave of private equity-led IPOs and their performance this year. But buyout houses, which have had to hold on to assets longer in the wake of the financial crisis, are also more conscious of the post-IPO performance this time, bankers say. For some of the largest leveraged buyouts completed during the boom years, an IPO is more about decreasing debt than selling stock on the first day of trading. "This time around, many of the successful IPOs, and those which are being contemplated for 2014, are delevering events," Ken McGrath, co-head of financial sponsors coverage for Europe at Barclays, says. You had a difficult dynamic before the crisis, when private equity groups used to sell down and try to maximise the price of the IPO. Today, it's much more, "look, it's a path to a monetisation, it's not crystallising the value on day one."" Hilton, the hotel group backed by Blackstone, raised more than $2.4bn in the second largest private equity-backed IPO this year to repay debt. Its New York-listed private equity owner has not sold shares in the offering. The stock is up 8.5 per cent. Shares in oil pipeline company Plains GP, backed by First Reserve, the largest sponsor-led flotation this year, have increased 20 per cent. Plains GP's owners sold part of their stakes in the IPO. Since most private equity owned companies are big, in many cases, investors have to be lured into the first round because there will be numerous follow-on offers to come. Apollo Global Management's LyondellBasell did a total of 10 secondary share offers after its IPO, each at a higher valuation than the previous deal while KKR did nine separate offers for Dollar General, with only one slice priced lower than the previous round. Many private equity groups have started pre-marketing much earlier to ensure successful debuts. Private equity groups initiate a dialogue with institutional investors longer in advance, typically six to nine months before an IPO. It used to be just a few weeks before the crisis," Jacques Callaghan, deputy head of European investment banking at Canaccord Genuity, says. Merlin Entertainments, the London-based theme park operator backed by Blackstone and CVC Capital, and Italian fashion designer Moncler, backed by Washington-based Carlyle and Paris-based Eurazeo, have listed this year. Merlin is up 14.5 per cent. Moncler has surged 43 per cent since listing earlier this month. There are now about 60 private equity-backed companies expecting to raise more than $14bn in 2014, according to EY. They include Shuanghui International, the US pork producer acquired this year by CDH China Holdings Management Co and New Horizon Capital, and Lenta, the Russian retailer owned by TPG. Others being prepared for an IPO in 2014 include El Paso, the oil and gas explorer owned by Apollo, and Aleris, the aluminium maker owned by Apollo and Oaktree.