Bookrunners with the best reputations can be more selective about the issuers they bring to market. They are typically associated with the most popular listings and, because of their credibility, can push back on pricing to ensure a deal trades well. A strong bookrunner will bring the best companies to IPO and ensure pricing will be cheap enough to perform well in the immediate aftermarket.

The bookrunner also controls the greenshoe, by which it has the means to buy as much as 15 per cent of an IPO back from the market in the first month, hopefully ensuring first-month returns are at par at the minimum.

All things being equal, the best IPO houses should be associated with the best aftermarket returns of the deals they bring.

So how do things stack up for Hong Kong's stock exchange, the world's third-busiest IPO market?

With the help of Thomson Reuters data, we can reveal which banks are behind the best performing IPOs. The results offer weighted and unweighted averages. The weighted figures adjust for deal size with the view that larger deals should count for more than smaller deals (see methodology, above).

One of the most interesting findings is how well HSBC Holdings has performed. Deals brought by the bank showed decent one-month returns (7.91 per cent weighted and 8.48 per cent unweighted), but the bank is well ahead of the pack in terms of its deals' one-year gains. IPOs lead by the institution in the reference period rose an impressive 73.82 per cent in the first year, using the weighted average. The unweighted average is consistent with that number, showing a 78 per cent rise.

Some of HSBC's big gainers include Ruinian International, a HK$1 billion offer that rose 95 per cent in its first year, and China Lilang, a HK$1.2 billion listing that went up 205 per cent in year one.

Investors would have also appreciated the HK$2.8 billion IPO of Sany Heavy Equipment brought by HSBC in November 2009, which rose 70.3 per cent in its first year.

NVC Lighting, an IPO brought by the bank in May last year, rose 94.8 per cent in its first 12 months, and the IPO for Bawang International (priced by HSBC in June 2009) rose 130.6 per cent in its first year. HSBC does well in Hong Kong/China with small to mid-sized industrial firms. Typically, the bank will nurture these companies with loans, which serve as early seed capital.

When the firms get to a decent size, HSBC, by virtue of its long relationship, will have a lock on the IPO mandate. Such industrials are not glamorous or well known but tend to be solidly profitable and do well at IPO.

Hong Kong listings led by Industrial and Commercial Bank of China, which also has good access to mainland industrial plays, generated the best one-month returns in the reference period. The weighted average return of its deals in the first month of trading was 12.15 per cent. ICBC-led deals returned 29.57 per cent in the first year.

However, its one-year average returns weighted for deal size shows an average return of negative 10.17 per cent, thanks to declines on the bank's bigger deals, such as a 14 per cent first-year decline for the Powerlong IPO, and a 40.4 per cent first-year decline for Sunart International. The deals are among the larger listings for ICBC, with float sizes of HK$3 billion and HK$602 million, respectively.

The first month's performance is a pretty good guide on how banks' deals performed. Deals typically generate a burst of interest and trading at IPO. The period best reflects how well a bookrunner gauged sentiment with its pricing.

With that in mind, the bookrunner group splits according to the weighted one-month average. Deals brought ICBC, Morgan Stanley, Barclays, UBS, Credit Suisse, HSBC, JP Morgan, Citi, Macquarie and China International Capital Corp in this study register decent returns in the first month, with weighted averages ranging from 5.44 to 12.15 per cent.

Citic and Bank of China are less impressive, registering one-month weighted averages of negative 4.49 per cent and negative 3.69 per cent.

Methodology

The data used here was provided by Thomson Reuters, which tracks IPO deal volumes. The analysis looks at listings priced in Hong Kong over the past three years. It examines the one-month and the one-year average share price gains or losses on IPOs for each of the top 15 IPO banks (by deal volume).

For example, we can see from the table below that, over the past three years, IPOs led by Morgan Stanley rose an unweighted average of 6.5 per cent in the first month. This figure does not account for the relative sizes of the deals, and the fact that investors care more about the performance of large deals than smaller ones, as they will put more money into big IPOs. The analysis provides average returns weighted by deal size (after splitting out IPO proceeds attributable to each bookrunner, as per the league table rules of Thomson Reuters). Looking at Morgan Stanley, deals led by the bank over the past three years returned a weighted average of 10.06 per cent in the first month. The bigger IPOs have more weight in this average, and it reflects real returns for investors.

Put another way, the weighted average return measures all the money that investors would have earned investing in Morgan Stanley IPOs in the reference period, divided by the total size of those IPOs.