BOSTON Nov 6 Mutual funds run by T. Rowe Price
Group Inc and Morgan Stanley are poised to send
one sweet tweet.
These early investors in Twitter Inc will reap
exponential gains as the microblogging site goes public, while
latecomers struggle for share allocations.
T. Rowe's New Horizons and Growth Stock
funds may come out looking smartest, having scooped up millions
of preferred shares for a pittance.
While mutual funds put the vast majority of investors'
assets into shares of publicly traded companies, some actively
managed funds jostle for additional upside by trying to get a
piece of promising companies years before they go public.
From its inception in 2006 through the end of September,
Twitter completed several rounds of equity financing as a
private company by issuing convertible preferred stock that
raised $759 million.
Such early-stage fund raising rounds once were typically
reserved for venture capitalists and private equity firms but in
recent years have been opened to mutual funds. Their seed
investments have led to success stories like the gains reaped by
Fidelity Investments on Facebook shares acquired before the
social network's went public last year.
At the end of June, T. Rowe's $14.3 billion New Horizons
Fund reported holding 4.6 million Twitter shares that cost $2.66
apiece. Those shares could be worth $115 million or more when
the dust settles on Twitter's stock market debut on Thursday on
the New York Stock Exchange.
Twitter is likely to price its IPO above the $25 top end of
the range announced on Monday, according to sources familiar
with the process.
T. Rowe, which was not available for comment, has been the
biggest pre-IPO investor in Twitter among mutual funds,
according to Morningstar data. T. Rowe stockpickers who favor
investing early in some startups include Ken Allen, manager of
its Science & Technology Fund, who bought Facebook and Groupon
Inc shares before they went public.
One of Allen's goals is to track potential investments
across many technology sectors. "The more ground you cover, the
more likely you are to find the best opportunities," he said in
a 2011 interview.
The Morgan Stanley Institutional Small Company Growth Fund
also looks like a potential winner from Twitter's IPO.
The fund is sitting on a potential nine-fold gain, after buying
$6 million worth of preferred stock from the microblogging site
For the Morgan Stanley fund, its pre-IPO Twitter stake
accounts for 2.2 percent of net assets, Morningstar Inc data
The fund paid $6 million, or $2.67 each, for 2.26 million
Series E preferred shares that convert into Twitter common
stock, U.S. regulatory filings show. That stock would be worth
$56.5 million at the top end of Twitter's current expected IPO
range of $23 to $25 per share.
Morgan Stanley declined to comment.
Goldman Sachs Group Inc is leading Twitter's IPO,
alongside Morgan Stanley and JPMorgan Chase & Co.
Chris Bartel, chief of global equity research for Fidelity
Investments, the No. 2 U.S. mutual fund company, said investing
in companies before they go public allows for better
understanding of their strategy, executive talent and potential
"For every one that we invest in, we look at many, many that
we pass on, including some that have gone public that we have
passed on," Bartel said.
Boston-based Fidelity did not invest in Twitter during the
company's early years.
But mutual fund companies that did - such as T. Rowe - are
looking good as Twitter's IPO is oversubscribed.
Twitter is likely to price the hotly anticipated IPO later
on Wednesday above an already bumped-up target range of $23 to
$25, according to sources familiar with the process.
While pre-IPO fund-raising can allow a broader audience of
investors to reap outsize gains once reserved for venture
capital and private equity, shares in a company typically can be
spread across dozens of funds within one mutual fund family.
That tends to dilute the impact of an IPO's upside and downside
on any particular fund, according to analysts.
Meanwhile, competition for IPO shares can be keen among
asset managers jockeying for a hot new issue.
Andrew Cupps, president of Cupps Capital Management of
Chicago, with about $1.5 billion under management, said his firm
has asked for an allocation of shares from Twitter's IPO, but is
not expecting a lot.
"It doesn't matter what you ask for," Cupps said. "Everyone
gets a fairly nominal amount. ... Nobody gets enough."