BOSTON Oct 2 Five mutual funds run by T. Rowe
Price Group Inc own $220 million worth of Twitter Inc,
opening up a big lead over rival U.S. funds to capitalize on the
social networking site's expected public stock offering.
T. Rowe's bet on Twitter underscores the strength of the
current IPO market, which has fully recovered from the sour
taste left by Facebook Inc's debut in May 2012. Not only
is social media back in favor, but mutual funds have a full
slate of IPOs to consider for their investors.
And mutual funds have become more adept at securing stakes
in private companies before they go public.
Up for grabs in the coming months is a chance to buy a piece
of a little bit of everything: energy companies, China's
Internet juggernaut, stores selling discount coats, and an
offering on Wednesday that included the Empire State Building.
"A lot of people stepped away from the IPO market after
Facebook," said Chris Bartel, chief of global equity research
for Fidelity Investments, the No. 2 U.S. mutual fund company,
noting Facebook's initial price drop after going public. "You've
definitely seen the capital markets open up. 2013 has been a
story of people getting comfortable with IPOs again."
Twitter is still in the early stages of planning its IPO,
which is expected to value the company at up to $15 billion. But
T. Rowe Price funds have taken the largest pre-IPO stakes in the
company among U.S. mutual funds, according to Morningstar Inc
T. Rowe's New Horizons and Growth Stock
funds, for example, owned $84 million and $83 million,
respectively, in Twitter stock at the end of June, according to
Morningstar. The fund company was not available for comment.
Moves by mutual funds to secure stakes in private companies
before they go public allow a broader audience of investors to
potentially reap outsize gains once reserved for venture capital
and private equity.
But shares in a company can be spread across dozens of funds
within one mutual fund family, diluting the impact of an IPO's
upside and downside, said John Bonnanzio, who edits a newsletter
for Fidelity investors.
Nevertheless, mutual fund investors can get a pop in their
portfolios if the fund managers buy stakes in private companies
months and even years ahead of a market listing. The funds
typically get to buy shares at prices below the public offering
price. And if the IPO stocks rise after their debut, all the
better for mutual fund investors.
Bartel said it's rare for a high-quality company to go
public without much investor interest. But that's exactly what
happened with Google Inc's IPO nine years ago.
Disinterest allowed Fidelity and other mutual funds to
gobble up big allocations of Google's stock, watching it rise
from $85 back then to more than $900 in July.
TAKING THE BACK DOOR
Twitter's IPO is just one in a string of large, high-profile
IPOs expected during the next several months. Chinese e-commerce
giant Alibaba Group Holding Ltd and hotel operator Hilton
Worldwide are among the listings expected to whet the appetites
of Wall Street and retail investors. Shares of Empire State
Realty Trust Inc, owner of the Empire State Building,
were up 1.5 percent Wednesday afternoon in their market debut.
While some U.S. mutual funds already have made direct
investments in Twitter, they are going through the backdoor to
capitalize on others before IPOs.
Funds with big stakes in Japan's Softbank Corp and
Yahoo Inc, for example, hope to capitalize on Alibaba's
surging growth. Softbank and Yahoo each own large stakes in
Alibaba and their shares have risen already on optimistic talk
about the Chinese company's IPO.
Three funds of American Funds, led by the EuroPacific Growth
Fund, owned a combined 9 percent of Softbank's stock
at the end of June, according to Thomson Reuters data. Mutual
funds also will get a chance to participate directly in the
Alibaba IPO, which could launch in New York or Hong Kong.
Last year, several dozen T. Rowe Price funds held a combined
5 percent stake in Facebook Inc Class A shares before the
social media company went public last year. Facebook's stock
tumbled after its debut. But the stock is now trading above $50
a share, or 32.5 percent above the IPO price, outperforming the
S&P 500 Index by 5.5 percentage points during that span.
Bankers are pushing companies to go public now because the
stock market is in a receptive mood for new names.
Fidelity's Bartel said private equity firms also are ready
to sell their stakes in companies that were not ready for prime
time in the wake of the 2008 financial crisis.
"We're now in the harvesting phase," he said.