- Mutual funds are cautious when taking bets in the private markets, and many were burned by big stakes in WeWork.
- But Airbnb’s explosive first day of trading provided an example of the rewards these funds can reap when a bet goes right.
- Managers like Fidelity, Principal, and Hartford all saw original investments in the home-sharing company at least triple thanks to a stock split before the IPO and a huge jump in the stock during Thursday’s trading.
- Visit Business Insider’s homepage for more stories.
Airbnb — a company dependent on travel — was losing value this summer, according to its mutual fund investors.
Amidst a pandemic and a global halt on travel, asset managers like Fidelity, Principal, and Hartford lowered their internal valuations of the then-unicorn.
But even with the pandemic’s end still an undetermined amount of time away, Airbnb’s first day of public trading Thursday was explosive, as the stock opened at $146 a share — more than double the IPO price of $68. The spike left Airbnb CEO Brian Chesky speechless and made the same investors that were devaluing the company this summer a lot of money.
Fidelity’s massive Contrafund — which manages more than $111 billion — first invested in Airbnb in 2014, putting $23.6 million into the company’s Series D fundraising round. That stake was worth nearly $170 million Thursday morning, or more than seven times the amount they invested, after the price jump and the company’s decision to split its stock before its IPO.
The fund also boasts an investment into the company in 2015, putting $32.6 million into its Series E fundraising round. This stake was valued at more than $113 million, as of the start of trading Thursday.
Fidelity’s Contrafund has returned 28% this year through the end of November, outperforming the S&P 500’s 14% return over the same period.
Other managers’ bets have also paid off big. Principal’s Large Cap Growth fund saw its $5 million investment and $2.7 million investment — from 2014 and 2015, respectively — turn into a combined stake of more than $44 million when trading started Thursday. Hartford’s half-a-million-dollar bet from 2015 is worth more than $1.7 million now.
The Securities and Exchange Commission ramped up its scrutiny on mutual funds making big bets on private companies last year, and WeWork’s disastrous non-IPO demonstrated the regulator’s worst fear. While the bets made by venture capitalists and hedge funds in the private markets can yield big returns, the risk profile is worrisome for mutual funds that manage retirement savings for average Americans.
Still, the Airbnb success shows why funds take the chance.
Actively managed mutual funds continue to bleed assets and cut fees as passively managed products like index funds have dominated over the past decade.
The argument against active funds is that they rarely outperform indices like the S&P 500, which has averaged an annual return of more than 13% over the last decade. Bets like Airbnb help active managers’ sales teams prove they are worth the cost.
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