Funds Betting on New Dot-Com Boom


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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

by Sarah Morgan, Smart Money,

With LinkedIn valued at nearly $10 billion, and Facebook said to be worth more than Walt Disney Co., it’s no wonder some market watchers see a second dot-com bubble ahead. But that hasn’t stopped fund managers from joining in the buying frenzy for these new tech darlings.

Quick price pops for newly public companies — and heightened demand for a piece of hot firms that have remained private — have made many Internet firms overvalued by most traditional measures, say analysts. Many are even more expensive than old-school tech stocks like Google and Apple. “These companies, in almost every dimension you can imagine, seem pretty pricey compared to other internet and technology companies,” says Scott Kessler, the head of technology-sector equity research for Standard & Poor’s. “That doesn’t mean they’re not good companies. But the valuations are much higher.”

And yet managers from Fidelity, JP Morgan, Morgan Stanley and other fund shops have taken positions in these pricey, newly public Internet firms. According to data provided to by fund tracker Morningstar, 42 mutual funds now own shares of social networking site LinkedIn (NYSE: LNKDNews), which is selling for more than double its May IPO price of $45. Other funds have also added positions in Internet radio service Pandora Media (NYSE: PNews) and HomeAway (NASDAQ: AWAYNews), an online market for vacation rentals. Pandora is trading for 19% more than its June IPO price, while HomeAway is up 52%.

It’s not just newly public companies that are garnering the managers’ attention. Several fund companies are also buying shares of still-private social media companies on the secondary markets. For example, more than 30 Fidelity mutual funds own shares of Facebook, according to a Fidelity spokeswoman. Several T. Rowe Price mutual funds have stakes in social media companies like Zynga, Twitter, Groupon, Angie’s List and Facebook. A T. Rowe Price spokeswoman declined to comment on specific positions, but pointed out that the company has said that while some of these companies may look overvalued, they’re also more established and stable than companies from the late 1990s dot-com boom.

Meanwhile, funds affiliated with Morgan Stanley Investment Management, including the $422 million Morgan Stanley Mid-Cap Growth fund, hold a total of 5 million shares of preferred stock Zynga, which will convert to common stock when the company goes public, according to the social-gaming company’s most recent filing with the Securities and Exchange Commission. Morgan Stanley declined to comment. Individual investors can’t buy shares of private companies on their own unless they’re “accredited,” meaning they have a net worth of at least $1 million or an annual income of at least $200,000.

So why all the fervor for dot-com firms? With global growth slow and likely to remain so “this kind of hyper-growth is a scarce commodity,” Kessler says. “There really just aren’t as many pure growth stocks as there used to be.” Thanks to investor demand for such growth, the IPO market is likely to stay hot through the rest of the year. In the second quarter, 46 companies went public, a 24% jump from a year earlier, but the total money raised soared 151%. Another 93 companies filed for IPOs during the quarter, up 21% from last year, and a total of 172 firms are now “in the pipeline” to go public.

To be sure, these mutual funds are all taking small stakes in these fledgling tech companies. For example, no mutual fund has more than 1% of its assets in LinkedIn. Fund managers instead tend to balance these bets on young firms with high-growth potential with more stable earners. “A manager that wants to have a balance of established companies and growth companies will sometimes need to fish in more uncertain waters,” says Todd Rosenbluth, a mutual fund analyst at Standard & Poor’s. “Investing in a mutual fund where there’s 50 or 100 stocks or more limits the risk of an upstart company damaging the returns of your portfolio.”

Still, investing in IPOs is risky business — no matter the stake. Studies have shown that a majority of newly public companies underperform the broader market in their first few years of trading. By the end of the second quarter this year, 43% of newly public companies had slipped below their listing prices. “New, young companies tend to be more volatile, tend to have more inconsistent earnings records, and add risk to a portfolio,” says Rosenbluth.

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