Facebook Disappoints Public Pension Funds . . . Again

Tuesday, September 04, 2012

When Mark Zuckerberg announced in February that Facebook would go public and unveiled the company’s prospective board of directors, the California Public Employees’ Retirement System (CalPERS) registered a formal objection to the all-male lineup.

CalPERS was already a Facebook private-equity investor but, as a matter of policy, the nation’s largest public pension fund regards diversity on the board as a significant contributor to a company’s well-being and Zuckerberg had disappointed them.

It wasn’t the last time CalPERS, and other California pension funds would be disappointed by Facebook.

CalPERS said in February that it intended to buy stock in the now-famously disastrous initial public offering (IPO), which opened at 38, quickly peaked at 45, then plummeted. The stock price was 18.06 at close on Friday. The fund refused to tell the Los Angeles Times how big an investment it made at the time, but said by May 23 it owned 557,140 shares and doubled that by the end of August.

The California State Teachers Retirement System (CalSTRS) tells of a similar investment—it holds 1.3 million shares—but also adds to the tale a $19 million day-trading profit when it jumped in and out of 500,000 shares to take advantage of a momentary price surge. CalSTRS’ return to the market has cost it an estimated $17 million.

Facebook investments are only a miniscule portion of the diversified multi-billion-dollar portfolios held by both pension funds. CalPERS, which manages more than $230 billion in investments, assumes for accounting purposes that it will earn 7.5% annual returns on investment over 20 years. In January, it announced a 1.1% return for the previous year.

Last month, CalPERS announced its intention to get out of the venture capital business, which is about 6% of its $34 billion alternative investments portfolio.  

Fresno County Employees' Retirement Assn. has joined with two other pension funds in initiating a class-action suit against Facebook over the estimated $1 million it lost in the Facebook IPO. The three funds, which included the Arkansas Teacher Retirement System and the North Carolina Retirement Systems, maintain that certain institutional investors were tipped to inside information by underwriters on Facebook’s less-than-rosy revenue projections.

–Ken Broder


To Learn More:

Public Pension Funds Stung by Facebook's Falling Stock (by Andrew Tangel, Los Angeles Times)

California Pension Fund Challenges Facebook Over Diversity on Board (by John Letzing and Joann S. Lublin, Wall Street Journal)

Board Sets Discount Rate at 7.5 Percent (CalPERS)

Fresno County Sues Companies over Pension Losses (by Michael Doyle, Fresno Bee)

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