Definition - What does Equity Syndicate mean?
An equity syndicate is a group of investors who decide on the price of a equity IPO before it enters the market. Many factors, such as the hedge risk and the financial status of the company, are taken into consideration by the equity syndicate when determining this price.
Divestopedia explains Equity Syndicate
Equity syndicates are a midpoint between equity capital markets and sales. The process of selecting the price of an IPO is labor intensive. It begins by collecting information from sales professionals who are experts in equity offerings and bankers who analyze the company's current financial position and growth prospects. Once this information is collected, a closed bidding is conducted where the members of the syndicate alone are eligible to participate. Based on this bidding, the price of the equity IPO is determined. In return for identifying the right price of the IPO, a certain percentage of shares is allotted to the syndicate before the IPO enters the market. The members of this syndicate take an appropriate profit or loss, depending on whether the price of the IPO goes up or down during the trading.
The number of members in any equity syndicate is fairly low and is usually comprised of top executives from investment banks. Equity syndicates do most of the hiring themselves through lateral hires and word-of-mouth suggestions. In general, to becomes a member of the equity syndicate, one should have extensive experience in ECM and corporate finance. It is estimated that the total number of people worldwide who are part of an equity syndicate is likely to be less than 100.