Thursday, May 17, 2012

Public Pension Funds, IPOs: What Will Facebook Tell Us?

Public pension funds practically have the largest investment portfolios on an absolute dollar basis when compared to most investors, retail and institutional, and consequently are the largest allocators to domestic equities and other asset classes. Due to limited staff and resources, the majority of public pension funds will likely hire professional (and emerging) investment managers to act as fiduciaries and manage assets per specified mandates and investment guidelines, and on behalf of all participants per a respective plan.
With the wave of recent IPOs and the hype towards Facebook (FB) going public, knowing the interest in the following companies from a public pension fund perspective may shed light to potential winners and losers: Angie's List (ANGI); Demand Media (DMD); Groupon (GRPN); HomeAway (AWAY); Jive Software (JIVE); LinkedIn (LNKD); Pandora (P); Yelp (YELP); Zillow (Z); and Zynga (ZNGA). The following pension funds, as of March 31, 2012, had interest in these newly traded stocks:
  • Angie's List - 49,998 shares, or $944,462
  • LinkedIn - 800 shares, or $81,592
  • Groupon - 4,400 shares, or $80,872
  • Zillow - 400 shares, or $14,236
  • Demand Media - 500 shares, or $3,625
  • Jive Software - 0 shares (down from 1,100 shares as of December 31, 2011)
  • HomeAway, Pandora, Yelp, and Zynga - 0 shares
  • HomeAway - 111,700 shares, or $2,829,361 (up from 0 shares as of December 31, 2011)
  • The other nine newly traded stocks - 0 shares
  • Yelp - 97,691 shares, or $2,626,911 (up from 0 shares as of December 31, 2011)
  • LinkedIn - 14,162 shares, or $1,444,382
  • Jive Software - 15,338 shares, or $416,580 (up from 0 shares as of December 31, 2011)
  • Demand Media - 10,164 shares, or $73,689
  • Groupon - 1,284 shares, or $23,600
  • HomeAway - 449 shares, or $11,373
  • Pandora - 998 shares, or $10,190
  • Angie's List, Zillow, and Zynga - 0 shares
  • LinkedIn - 500 shares, or $50,995 (up from 0 shares as of December 31, 2011)
  • Groupon - 2,500 shares, or $45,950
  • The other eight newly traded stocks - 0 shares
Of these ten stocks, Zynga was the only one not held by the above pension funds. Elsewhere, Alaska, Arizona, and Ohio had no holdings in Yelp, yet Florida had excessive exposure to the stock relative to Groupon and LinkedIn. Arizona had no exposure to Groupon or LinkedIn but interestingly, had almost a $3 million position in HomeAway. Alaska was the only above pension fund with exposure to Angie's List, a much greater position when compared to Groupon and LinkedIn. With this said, feelings were mixed.
With Facebook going public, I am curious to see if it becomes more largely held across pension funds relative to other newly traded stocks. Over time, if more cash is allocated to Facebook per pension fund rather than to the likes of Groupon, LinkedIn, and so on, and it possibly becomes a major holding, this will reflect a vision not just from pension funds, but more so from the retained investment managers responsible for investing pension fund assets. Such managers are required to adhere to guidelines and unless hired for an alternative investment mandate, their views will likely be long-term.
I think if more capital is allocated to Facebook rather than to other newly traded stocks, this may be a sign that Facebook has a longer lasting and better business model. Also in some cases, pension plans may have owned Facebook initially via private equity investments and therefore may look at the company from a different perspective than other soon-to-be investors. In a year or so out, it will be interesting to see what kind of role Facebook has in a public pension fund's investment program, especially given the hype.