From the category archives:

Private Shares

T. Rowe Price disclosed that as of the end of March, the mutual fund had invested a total of $190 million in Facebook at an average price of $25 per share, distributed across 20 funds.  These shares were purchased through a Facebook-sanctioned private offering of employee stock.

In addition to disclosing their investment in Facebook, T. Rowe also disclosed a $71.8 million stake in Zynga, a $35.4 million investment in Angie’s List, an $86.8 million stake in Groupon, a $66.6 million stake in Twitter, and $114.7 million position in YouKu.com.

It’s clear that by taking these positions, T. Rowe is looking to re-capture some of the public returns that have melted away as companies have waited longer to go public.  While these investments represent less than 0.04% of T. Rowe’s $485 billion investment portfolio, we believe these investments are a precursor to a trend of institutional investors seeking improved returns by increasingly taking positions in private companies.

In the current environment, companies are going public at a later stage and at a higher valuation, thereby diminishing much of the appreciation that investors have historically enjoyed by purchasing shares in an IPO.  Rather than going public at $85, if Google had been a private company in these times, it may not have gone public until it was worth $300 a share, thereby erasing significant gains that accrued to public shareholders.  Similarly, if Facebook were private in the ‘90s, it’s likely that the company would’ve IPO’d at a valuation of under $10 billion; whereas we believe a Facebook IPO now would exceed $100 billion.

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