Some large asset managers are reportedly mulling sitting out Robinhood’s IPO for fear of retail-driven volatility

Robinhood on cellphone
Robinhood app

Some institutional investors are wary of Robinhood’s imminent IPO over fears that outsized retail interest could prompt a volatile listing, according to a report from the Financial Times.

Some big asset managers who spoke with the FT said that they intend to sit the IPO out, fearing middling interest from other institutional investors. Even those who plan to participate expect volatility in the early days of Robinhood listing.

“The more stock in retail hands the more volatile it is,” one trader at a big asset manager told the FT.

Robinhood plans to allocate up to 35% of its listing to retail investors buying through its own app. That could drive volatility as retail investors sell their newly acquired shares shortly after the debut.

Robinhood has sought to dissuade retail investors from quickly dumping their shares. Investors who bought into the IPO through the company’s app cannot sell shares for 30 days without losing access to future IPOs on the app for two months. However, that is far short of the average lock-up time for institutional investors, at more than 180 days, according to Dealogic data cited by the FT.

Retail-driven volatility could work in favor of the stock, especially on the first day. Retail traders scrambling in after the initial listing could lead to a surge on the first day – a “meme-bump” – followed by sharp ups and downs, one trader said.

“Most serious investors will wait and see what happens. Maybe Robinhood will become the next meme stock,” UPenn professor David Erickson, a former IPO banker, told the FT.