The Structure and
Investment Performance of
Only 20 years ago, the largest share offering in world history had raised less than $1.5 billion, and very few share offerings ever raised more than $250 million. However, since the first British Telecom offering in November 1984, which raised an unheard of $4.9 billion, no fewer than 183 share issue privatizations have raised at least $1 billion, and 16 have raised over $10 billion! Twenty years ago, a very small fraction of the adult population owned shares in any developed country except the United States, and share ownership was even more highly concentrated in developing countries. Today, between one-sixth and onethird of the adult population owns shares in most developed (and in a few developing) countries, and share ownership exceeds 40 percent in at least three—Sweden, Australia, and the United States.
Twenty years ago, the total value of all of the world’s listed companies was a little over $3 trillion, a figure that was less than 40 percent of world GDP. By early 2000, global market capitalization reached $35 trillion, a figure equal to global GDP. Even after world market capitalization declined to its low point of about $20 trillion during the summer of 2002, this still equaled roughly two-thirds of global output, and the global rebound in stock value over the next two years has brought worldwide valuations back near $30 trillion by the summer of 2004. In other words, the past 20 years have witnessed a revolution in global finance and, outside of the United States, the most important factor in this transformation has been the spread of SIP programs around the world.
This chapter examines the structure and investment performance of SIPs. As we will see, these often massive share issues differ fundamentally from privatesector share issues in almost all respects, except that both use the same financial instrument. The insignificantly positive long-term investment performance of SIPs also differs dramatically from the significantly negative long-run returns observed for private share offerings. Additionally, SIPs were the first truly large share offerings of any type in most countries, so privatizations effectively inaugurated those nations’ investment banking industries. Even in the handful of countries (Britain,