MacroShares’ planned initial public offering for its Major Metro Housing exchange-traded products has failed, due to an imbalance in orders between investors wanting to buy upside exposure to U.S. residential home prices and those wanting to invest on the downside. The company says it will now launch the products using a traditional, market-maker-driven process; the new launch is scheduled for sometime in the next few days.
“We set a $125 million minimum for the initial public offering and we had IPO interest that was a multiple of that,” said MacroShares Chief Executive Sam Masucci. “Ultimately, however, we could not get $125 million to cross at appropriate prices.”
The Major Metro Housing Up (NYSE Arca: UMM) and Major Metro Housing Down (DMM) are designed to deliver 300% and -300% of the return of the S&P/Case-Shiller Home Price 10 Index over the next five years. They will achieve that return not by buying actual houses, but by following MacroShares’ patented “teeter-totter” product structure.
Under that structure, the Up and Down Macros hold Treasury securities as their sole asset. As the benchmark index moves up or down, those Treasuries are transferred back and forth between the Macros. The structure allows MacroShares to launch products tied to any reference price, including previously uninvestable benchmarks like national home prices.
To function, however, there must be an equal number of Up and Down shares, and the price of those paired shares must sum to a predefined number; in the case of the housing Macros, $50 (i.e., if UMM is worth $30, DMM must be worth $20). And that’s where the IPO had problems, according to MacroShares.
The firm tried to raise assets for the products through a Dutch-auction IPO, wherein investors “bid” for IPO shares at prices of their choosing. At the end of the IPO, software was supposed to match up orders to ensure the largest possible IPO at the best possible price.