Bob Moon: A lot of people would like to invest in hot tech companies these days — Facebook, Twitter, Groupon. Since they aren’t trading shares publicly, though, only well-connected investors can get a piece of the action. But it seems their private club is about to be invaded.
T. Rowe Price just divulged it owns nearly $200 million worth of Facebook shares, and it’s put those investments into some of its mutual funds. Here’s Marketplace’s Stacey Vanek Smith.
Stacey Vanek Smith: Private shares of a hot company are like Wall Street’s version of a golden ticket. Jack Ablin is the chief investment officer for Harris Private Bank.
Jack Ablin: Companies like Google come to the public markets and their stock prices explode and the early insiders make a fortune.
Companies like issuing private shares because they can raise money without all of the expensive regulations and financial disclosure that comes with going public. The appeal for investors? Investment economist Gary Shilling.
Gary Shilling: Going to a cocktail party and saying, ‘Well I’m in a mutual fund, I’ve got my piece of Facebook,’ probably has a certain amount of sex appeal.
Sexy? Maybe. Smart? Hard to say. Mutual funds have started dipping into private shares because investors are excited about them. T. Rowe Price also owns shares of Twitter and Angie’s List, and all that exposes them and their investors to more risk, says Georgetown finance professor James Angel.
James Angel: You’re at the mercy of the company to decide how much, if any, financial information to give you.
T. Rowe Price told Marketplace that Facebook shares make up a tiny fraction of its enormous portfolio — less than half a percent. And, anyway, it’s Facebook. Isn’t that a pretty good bet? Harris Private bank’s Jack Ablin says, well…
Ablin: It just reminds me of that Groucho Marx line that says he would never join a club that would allow him to be a member. When Wall Street is offering these shares to individuals, chances are the party’s pretty much over.
In New York, I’m Stacey Vanek Smith for Marketplace.
We’re here to help you navigate this changed world and economy.
Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.
In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.
Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.
Give today and get our limited edition tote.