Anthropic (ANT.US) on the Eve of Its IPO: US$19 Billion in Passive Buying Is on the WayWill "SpaceX-Style" Index Arbitrage Play Out Again?

When AI company Anthropic (ANT.US) begins trading after its expected listing next week, its share price performance in the first few weeks will depend mainly on who has to buy, not who wants to buy. Investors are studying SpaceX's successful listing in June this year for clues. Elon Musk's SpaceX (SPCX.US) rewrote the playbook for mega-cap listings: major US index providers such as Nasdaq rewrote inclusion rules to ensure a large pool of passive money would buy shares within the first 15 days of trading. Investors expect the same dynamic for Anthropic. The developer of the Claude chatbot plans to issue 825 million shares at US$70 to US$78 each, raising up to US$64.4 billion and valuing the company at up to US$1.4 trillion. In the past, major index providers typically waited weeks or months after a company's listing before adding it to benchmark indices. But like SpaceX, Anthropic will be added to at least six major indices within 5 to 15 days of listing, including the FTSE US Index, the S&P Total Market Index and the Nasdaq 100. "Anthropic is a mirror image of the SpaceX IPO. On that point, it has the same index-related drivers as SpaceX in its first 15 days of trading," said Carsten Hesse, head of index events at Berenberg in London. London-based index rebalancing analytics firm Intropic estimates that passive demand from index-tracking funds will account for about 28% of Anthropic's issued shares, or about US$19 billion. Funds and hedge funds doing index rebalancing will bid for shares to build positions ahead of this expected passive demand. SpaceX reserved one-fifth of its US$75 billion offering for retail investorsmore than double the usual levelat a valuation of nearly US$1.75 trillion. Anthropic is doing the same. Index funds and retail investors together took nearly half of SpaceX's offering shares, while other fund managers built positions early to capture this demand. This created upward momentum for the small portion of shares in free float from the initial public offering. Similarly, Anthropic's IPO shares represent only about 6% of its total shares outstanding. SpaceX and South Korea's SK Hynix, which listed on Nasdaq in July this year, both saw sharp share price jumps on their third trading daythe day options trading began, when speculators hedged derivative positions by buying the underlying stock. Analysts say Anthropic's shares will see similar early buying. "You don't wait until day 5, day 10, day 15, until you see the index upgrade or inclusion actually implemented," Hesse said. "As we saw with SpaceX, people buy ahead of time." The game changer for index trading By the third day, SpaceX's share price had risen 50% from its US$150 opening price on its first trading day, and remained well above its US$135 offer price throughout the first 15 days. The stock later fell as investors began positioning for the first lock-up expiry, when employees and other pre-IPO shareholders are allowed to sell. Intropic equity analyst Ruben Pathmanathan said buying with very low price elasticity drove the rally. "SpaceX may become the template because several market forces converged around the listing at the same time: index inclusion, passive demand and a highly concentrated float. Together they determined how the stock was priced and how it traded in the first few days." Anthropic's path may differ slightly: it allows employees holding about 15% of the company's equity to sell some shares on the first day of trading. Anthropic is also raising US$26 billion from cornerstone investors through a separate private placement, with investors including Alphabet Inc. Class C (GOOGL.US), NVIDIA Corporation (NVDA.US) and AMD (AMD.US); these shares have no lock-up period. New index rules and massive fund flows have become a game changer for the funds that profit from index rebalancing trades. "This is an evolution of the market," said Brian Hartigan, head of global ETF and index investments at Invesco, referring to the novelty of these mega-offerings that accumulate huge private shareholdings before listing. Traditionally, index rebalancing trades have been constrained by IPO sizetoo many funds try to front-run, while passive demand is limited. For mega IPOs, this problem is less pronounced. "This is the type of opportunity the arbitrage community likes, because the risk of crowding is relatively limited," said Celia Fseil, head of equity market-neutral strategies at Candriam. Millennium Management's two teams trading index changes reportedly made US$3.7 billion in June. Millennium did not confirm. "If you do index rebalancing, these can be once-in-a-lifetime events," said Bill Park, chief investment officer of Connecticut-based Altisma Capital Management.