About PIPEs PIPE Market PIPE positioning
Positioning PIPEs
PIPEs are best considered as an allocation within the context of a well-diversified investment portfolio
Liquidity and Return
For investors new to PIPEs, positioning them within a portfolio can be challenging. While investors in PIPEs profit by trading stocks, PIPEs are less liquid investments that involve a very different philosophy from equity investing. Therefore, most investors prefer to consider them as part of an allocation within alternative investment strategies.
Like other alternative investments, PIPEs appeal to investors seeking high returns. Since PIPE returns are more influenced by company-specific events than by market trends, they may have lower correlation to major market indices than by traditional equity investments. Therefore, when added to an overall portfolio allocation, they may also offer diversification benefits.
An Alternative to Traditional Equities…
While PIPE strategy involves the trading of public equities, it bears few meaningful comparisons to traditional stock-based strategies. In fact, one of the most compelling aspects of a PIPE is that unlike a traditional stock investment, a PIPE transaction does not need price appreciation to profit. The holding need only continue trading above the discounted price to realize a healthy return.
…And Private Equity
PIPE investing is also often compared to private equity or venture capital investing. However, these comparisons fall short as well. Private equity investors typically seek companies that have yet to come to market —again, betting on the rewards of long-term share price appreciation. Private equity investors often look for management control where hands-on activism can help unlock greater shareholder value.
In addition, the time frame for a private equity investor tends to be substantially longer than that of a PIPE investor. PIPE transactions are strictly regulated, and there is often a statutory six- to 12-month lockup before PIPE shares can be sold in the public markets. In contrast, private equity investors often hold an investment for at least five years or more.