- In an unusually open letter, T. Rowe Price's fund managers ridiculed WeWork as a "terrible investment".
- T. Rowe Price led WeWork's 2014 Series D financing round, in which the company was valued at $ 4.65 billion.
- The fund managers said they invested with the understanding that WeWork would contain their losses and growth, but that didn't happen.
- WeWork was unable to go public last year and instead almost went bankrupt, causing the valuation to drop.
- You can find more stories on the Business Insider homepage.
When it comes to investing in WeWork, it can be said that T. Rowe Price's investment team has some regrets.
in the her letter to the shareholders In the company's mid-cap growth portfolio annual report, Brian W.H. Berghuis, chairman of the fund's investment advisory board, and John F. Wakeman, executive vice president of the portfolio, said the portfolio's participation in the commercial real estate startup had brought them "overly headache and disappointment." The investment that the portfolio made in 2014 was made with the understanding that WeWork would slow down its rapid growth and improve its bottom line. Although the company took steps in this direction shortly after T. Rowe Price's investment, it soon returned to its major expenses, they said.
WeWork's waste finally caught up with it. The attempt to make a public offer last summer broke down amid investor concerns about the massive losses. After the IPO failed, its valuation plummeted from $ 47 billion to less than $ 8 billion and almost went bankrupt before SoftBank saved it. The bottom line of all of this was that T. Rowe's remaining stake in the company is now worth much less than it used to, Berghuis and Wakeman said in the letter.
"While it is possible that the new WeWork management team will improve operations a bit, we are ready to say that this is a terrible investment," they said.
The letter was an unusually open assessment by a top-class investor. T. Rowe Price led WeWork's D-Series series, in which the company raised $ 355 million at a value of $ 4.65 billion, according to PitchBook.
Berghuis, Wakeman and their team have had concerns about their WeWork investment for years, especially regarding the company's corporate governance and the trustworthiness of its former CEO Adam Neumann. At one point, Neumann had iron control over the company with 20 votes for each share he held, and was the target of criticism of numerous personal transactions that he made with the company.
Adam Neumann promised that WeWork would be profitable
T. Rowe's team was particularly outraged by the company's steadily growing losses.
Neumann "promised profitability was close to the horizon," the letter said. "We didn't take his word for it and told WeWork management that we weren't happy with the eroding corporate governance."
T. Rowe sold a total of 16% of its shares in WeWork in 2017 and 2019, which amortized approximately half of its original investments. They planned to sell their remaining stake last year, but management of WeWork, which had a veto right over the transaction, blocked the deal.
"It is clear that we misunderstood the motivations of the management of WeWork and our investment partners," said Berghuis and Wakeman in their letter.
Investment fund companies are increasingly investing in private startups, also because companies only delay their IPO later in their life, if they go public at all. Some policy makers and many in the financial industry have pushed to make it easier for everyday investors and investment tools such as mutual funds to get involved in startups. However, some advocates of consumers have raised concerns about this term because private companies only publish a limited amount of financial information and the risk of such companies failing is high.
In their letter, Berghuis and Wakeman defended their portfolio's investment in private companies, arguing that their strategy should not be judged on WeWork events. The combined value of the portfolio's private investments accounted for only 0.58% of its total. Many of these investments have generated good returns and offer insights into the changing industries and future competition with the public investments in the portfolio.
"In short, we believe that the WeWork debacle was a mistake in assessment, not in process," they said.
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