Fast Index Inclusion to Boost Passive Buying
Anthropic is expected to launch its IPO next week. Owner of the Claude chatbot, it plans to offer 825 million shares at $70 to $78 per share, raising up to $64.4 billion, with a valuation of up to $1.4 trillion. Unlike past large listings that typically waited weeks or even months for inclusion in major indexes, Anthropic is expected to follow the SpaceX model, being added to at least 6 major indexes within 5 to 15 days after listing, including the FTSE US Index, S&P Total Market Index and Nasdaq 100 Index.
London-based index-adjustment analysis firm Intropic estimates that demand for Anthropic shares from index-tracking passive funds could account for about 28% of the shares offered in the IPO, or about $19 billion. To position ahead of these expected inflows, index-rebalance funds and hedge funds will also buy in early. Carsten Hesse, head of index events at Berenberg, the investment research unit of Deutsche Bank, noted that Anthropic's IPO is almost a replica of SpaceX's listing, with the first 15 trading days driven by index-rebalance buying, and investors will buy in advance rather than waiting until the index adjustments are completed.
SpaceX Experience and Float in Focus
SpaceX listed in June this year, raising $75 billion at a valuation of nearly $1.75 trillion. It allocated 20% of its IPO shares to retail investors, more than double the level of a typical IPO, and Anthropic has adopted a similar arrangement. After SpaceX's listing, index funds, retail investors and other fund managers positioning early together bought nearly half of the publicly offered shares. SpaceX's publicly traded float after listing was quite limited, with the initially offered shares accounting for only a small portion of total shares outstanding, and limited supply combined with huge buying interest created upward momentum in the share price.
Shares offered in Anthropic's IPO account for only about 6% of its issued shares, meaning the proportion of shares available for trading in the early days of listing will be low. When passive funds must buy according to index weights and other investors position early, the limited float could further amplify the supply-demand imbalance. On its third trading day after listing, SpaceX rose 50% from its $150 opening price on the first day, and remained above its $135 IPO price throughout the following 15 trading days. South Korean company SK Hynix, which listed on Nasdaq in July this year, also posted a notable rally on its third trading day. Market watchers note that the third trading day draws particular attention because stock options trading usually begins then, and derivatives speculators may buy the underlying shares for hedging. Intropic equity analyst Ruben Pathmanathan said the SpaceX experience is worth referencing for how index inclusion, passive fund demand and a highly concentrated float jointly affect pricing.
However, SpaceX did not sustain its gains after listing, with its share price later declining as investors anticipated selling pressure from the expiration of lock-ups for pre-IPO shareholders and employees. Unlike SpaceX, Anthropic will allow employees holding about 15% of the company to sell part of their shares from the first day of listing, meaning more shares could enter the market in the early days. In addition, Anthropic plans to raise $26 billion through a separate private placement from investors including Alphabet-owned Google, Nvidia and AMD, with no lock-up on shares acquired through the placement, which could become a variable affecting market supply and share price performance. Brian Hartigan, global head of ETFs and index investing at Invesco, noted that mega IPOs often already have a large private shareholder base before listing, and then quickly face fund flows from index inclusion after listing. Celia Fseil, head of equity market-neutral strategy at Candriam, believes such opportunity trades are large in scale with relatively low crowding risk. Bill Park, chief investment officer at Altisma Capital Management, described such opportunities as "once-in-a-lifetime" trades for index-rebalance arbitrage investors.