Dice, decisionsMark Wragg/Getty Images/iStockphoto
A new offering from Quadravest Capital Management Inc. could change the way structured products are sold in Canada.
Typically, these securities – which are like mutual funds with unique attributes – are sold in marketing blitzes that last for a number of days or weeks. During these sales windows, fund managers criss-cross the country and meet with investment advisers to pitch their products.
But Quadravest took a different route this week, deciding to sell its latest offering of Dividend 15 Split Corp. in an overnight marketed deal -- meaning they launched the offering on Tuesday after the market closed, and priced it very next morning. The major risk was that the company wouldn't get the $20-million it wanted in such a short time period.
But by all accounts the bet paid off. Not only did Quadravest raise the money, it got about $45-million in interest. They decide to cap the final deal size at $38-million.
Quadravest didn't go this route simply to save time. Because structured product offerings can't be sold at prices that are dilutive to the funds' net asset values, the offerors can't price new deals based on where their units are trading in the market. So if the units are trading at a premium, the deal is typically sold at a lower price.
This can be frustrating for the funds because their premium usually erodes over the course of the marketing period. Think of it this way: if the premium didn't fall away, investors could simply buy units at the new issue price and then sell them immediately at market prices to book a profit.
Despite the risks, Wayne Finch, Quadravest's chairman, said "we were reasonably confident that we could do the minimum size," adding that they had a decent sense of investor appetite because of e-mails they had received from people wanting more of their product.
"I think the underwriters were a little more nervous than we were," he joked. National Bank Financial led the offering, sharing the top line with CIBC World Markets and RBC Dominion Securities.
Would he go this route again? Absolutely. "I think it's the best thing for existing shareholders and for us," he said.
Time will only tell if other funds start asking to do the same.
(Tim Kiladze is a Globe and Mail Reporter.)
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Tim Kiladze