Hong Kong's IPO boom has transformed share allocations into an invitation-only affair, with new listings delivering average first-day gains of nearly 30% this year. Companies are increasingly deciding themselves who gets a seat, carving out room for strategic investors, business partners and other close allies sometimes grouped as "friends and family," leaving traditional funds struggling for allocations. This shift marks a sharp contrast with years past when investment firms mostly competed with each other and relied on close ties with banks to win allocations.

Management teams are now directly involved in choosing their investors, a process that has become more of a dance since the post-Covid period. Underscoring the excitement over the IPO boom, shares of more than 100 companies that debuted in Hong Kong this year have posted a weighted-average first-day gain of roughly 28%. One example is printed circuit board maker Victory Giant Technology Huizhou Co., which surged 50% on its first day in April after completing one of Hong Kong's biggest debuts this year.

Company executives were heavily involved in picking investors in the $3 billion listing, aligning the company's investor roster with its most prominent customer, Nvidia Corp. In another example, more than a third of the nearly 300 institutional investors that placed bids in Lingyi i Tech Guangdong Co.'s Hong Kong listing in June failed to get shares, as management was closely involved in the allocations. Companies are now rewarding business associates including suppliers and customers by allocating them shares likely to do well in a hot market, often prioritizing early investors over short-term buyers.