Jakarta – Hedge fund managers craving higher returns from pre-IPO investments are taking a one-way bet on such deals in emerging Asian economies like Indonesia, and will be left with big losses and no exit if they go awry.
Credit Suisse (CSGN.VX: Quote, Profile, Research), Deutsche Bank (DBKGn.DE: Quote, Profile, Research), Merrill Lynch (MER.N: Quote, Profile, Research) and other banks are scouring Indonesia to find companies, which are looking to raise money but are not quite ready for the public market, so they can link them up with hedge funds in highly profitable private deals.
Hedge funds are flocking to these investments in a number of emerging economies, since they can count on a substantial discount for buying at such an early stage, with the aim of flipping them for a big profit soon after an IPO.
The strategy seems foolproof when markets are going well, as they are now. But if the IPO plans of such companies become derailed for any reason, investors could be sitting on worthless assets, a risk they may not be properly protected against.
