P.I.P.E portfolios

Discussion in 'Trading' started by dcunited, Dec 9, 2005.

  1. Hey has anyone ever heard of a PIPE portfolio, particularly as it pertains to hedge funds? Came across this other day and had no idea what a PIPE portolio would be.
  2. Ebo


  3. EricP


    PIPE = Private Investment in Public Equity

    Typically, they are small relatively illiquid public companies that need money. They could do a secondary offering to the public, but this might take 6+ months to complete. Instead, they do a private offering of their shares (PIPE), selling their shares to private investors and/or hedge funds, at a discount from their current price levels.

    The hedge funds or investors can hold the shares, and benefit from the expected appreciation of the company due to good fundamentals, etc. Or, they can immediately try to sell the shares, recognizing that their sales will quickly depress the price of the stock below the discounted purchase price that they paid.

    The amount of the discounted share price depends mostly on the liquidity of the stock. Often, these deals will also come with warrants to buy additional shares at a higher price, given the PIPE buyer a reward if the stock appreciates substantially in the future.