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by meursault334
3693 days ago
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When mutual funds release valuation estimates of closely held companies do they view this as an impartial exercise in determining the value or do they use these estimates to influence the decisions of their shareholders and the closely held company they are estimating the value for? It seems likely that they are using the valuation estimates as a tool within reason. |
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>"Fidelity's 'Unicorn' Valuations Were Just Proven To Be Bogus," writes Dan Primack, and while I sympathize with his annoyance, I disagree with him a little. Primack's main point is that one shouldn't take too seriously the private-company valuations in big mutual funds' monthly holdings reports, because those valuations are not market-derived but are instead set by valuation committees that may not have much in the way of financial information. Which is fair enough. But he also tells the story of drug unicorn Stemcentrx: Fidelity invested at a $5 billion valuation in August 2015 and had marked down its holdings by 37.75 percent as of this February, but then AbbVie agreed to buy the company for $5.8 billion plus billions more in potential earnouts. "If Fidelity was so wrong about Stemcentrx," asks Primack, "why would anyone trust its carrying value of Pinterest or Zenefits?"
>But that's not quite fair. Public company acquisitions normally come at a premium. Heck, the stock market values Yahoo's core business at negative $8 billion, and it might sell for positive $8 billion, a premium of double infinity. (There may be flaws in this math.) You shouldn't think of Stemcentrx as having some true permanent value that Fidelity got "wrong" and AbbVie got "right." Instead, Fidelity's monthly marks were a rough effort to approximate a public-market price for Stemcentrx. Sometimes those prices go up, sometimes they go down, and sometimes the company is bought at a big premium to the last price. It's all an effort to recreate the appearance of public markets in private stocks. It's more bogus than public pricing, sure, but it's a sliding scale; public markets don't always reflect true permanent value either.
See also http://www.bloombergview.com/articles/2016-03-04/unicorns-ar...