New Zealand investors ‘daunted’ by IPO documents

Financial regulator finds majority of potential shareholders don’t finish reading offer documents

Any renewed optimism surrounding the western IPO market may be hampered by investors not being able to understand the documentation surrounding it, finds a survey carried out by New Zealand stock exchange operator NZX and the Financial Markets Authority (FMA).

FMA and NZX asked investors about information surrounding the recent round of IPOs of companies listing on NZX. Of those who review offer documents, the survey finds that only 15 percent read them cover to cover, while just over half the respondents manage to get more than halfway through.

The majority of New Zealand investors are left daunted by the prospect of a large and unwieldy offer document, with only 7 percent of those surveyed describing them as easy to understand. Sixty-three percent maintain that such documents are fairly easy to comprehend.

FMA’s report claims ‘people find the documents daunting due to their size and technical content’, and investors would rather read ‘short, user-friendly’ summaries written in plain English. Moreover, 34 percent of respondents claim they have looked to at least one professional for advice before making an investment.

FMA’s head of primary regulatory operations, Simone Robbers, says this statistic in particular is ‘less than ideal. We would like to see a greater willingness by consumers to take financial advice before they make investment decisions such as investing in a public company.’

In conjunction with NZX and the New Zealand Ministry of Business, Innovation and Employment, FMA will consult investors on creating easier-to-follow disclosure statements, set to be available from issuers this December.

Robbers says that while the way in which investor information is presented has improved recently, she anticipates support from shareholders and issuers for the regulator’s new requirements. ‘The new product disclosure statements will be short, retail investor-focused documents, much shorter than the prospectus and investment statements we have seen in the past,’ she notes. ‘The information must be presented in a clear, concise and effective manner.’

Aaron Jenkins, NZX’s head of markets, reaffirms the exchange’s support for clearer documents for investors. ‘A key principle of the new market is simplicity,’ he explains. ‘NZX intends to streamline the investment process by providing simpler rules and disclosure practices for listed businesses, subsequently reducing complexity for investors.’

The survey recorded the opinions of 303 investors who have seriously considered investing in a recently listed company, including 201 who have actually invested in at least one.

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