- In an unusually frank letter, T. Rowe Price’s fund managers ridiculed WeWork as a “terrible investment.”
- T. Rowe Price led the WeWork Series D financing round in 2014, which valued the company at $ 4.65 billion.
- Fund managers said they invested with the understanding that WeWork would reduce their losses and growth, but that did not happen.
- WeWork did not go public last year and was about to file bankruptcy, which caused its valuation to collapse in the process.
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When it comes to investing in WeWork, one could say that the investment team of T. Rowe Price has some regrets.
In his letter to the shareholders in the annual report of the Company’s average capitalization growth portfolio, Brian W.H. Berghuis, chairman of the fund’s investment advisory committee, and John F. Wakeman, executive vice president of the portfolio, said the participation of the portfolios in the commercial real estate company had brought them “huge headaches and disappointments.” The investment, which the portfolio made in 2014, was made with the understanding that WeWork would moderate its rapid growth and improve its bottom line, they said. Although the company took action in that direction shortly after T. Rowe Price’s investment, it soon returned to its large expenses, they said.
WeWork’s waste finally reached him. His attempt at a public offer last summer collapsed in the face of investors’ concerns about their massive losses. After her IPO failed, her valuation collapsed from $ 47 billion to less than $ 8 billion, and she almost went bankrupt before SoftBank rescued her. The end result of all that was that T. Rowe’s remaining participation in the company is now worth much less than it once was, Berghuis and Wakeman said in the letter.
“While it is possible that the new WeWork administration improves operations a bit, we are ready to declare that this is a terrible investment,” they said.
The letter was an unusually frank evaluation of a high profile investor. T. Rowe Price led the WeWork Series D round, in which the company raised $ 355 million at a valuation of $ 4.65 billion, according to PitchBook.
Berghuis, Wakeman and his team have had doubts about their investment in WeWork for years, particularly regarding the company’s corporate governance and the reliability of its former CEO, Adam Neumann. At one time, Neumann had a tight grip on the company with 20 votes for every action he had and was criticized for numerous personal transactions he made with the company.
Adam Neumann promised that WeWork would be profitable
T. Rowe’s team was particularly indignant at the company’s growing losses.
Neumann “promised that profitability was coming,” they said in the letter. “We do not keep his word, and we communicate with WeWork management and address our dissatisfaction with the erosion of corporate governance.”
T. Rowe sold a total of 16% of its stake in WeWork, recovering approximately half of its initial investment, in private transactions in 2017 and 2019, they said. They planned to sell their remaining stake last year, but WeWork management, which had veto power over the transaction, blocked the deal.
“It is clear that we misunderstand the motivations of WeWork management and our investment partners,” Berghuis and Wakeman said in their letter.
Mutual fund companies have been increasingly investing in new private companies, in part because companies are delaying IPO until later in their lives, if they become public. Some policy makers and many in the financial industry have been pushing to make it easier for everyday investors and investment vehicles, such as mutual funds, to buy new businesses. But some consumer advocates have expressed concern about this notion, due to the limited amount of financial information that private companies make public and the high risk of failure of such companies.
In their letter, Berghuis and Wakeman defended their portfolio investment in private companies, arguing that their strategy should not be judged based on what happened with WeWork. They said that the combined value of private investments in the portfolio comprised only 0.58% of its total value. Many of these investments have generated good returns and provide information on how industries are changing and the future competition for public investments in the portfolio, they said.
“In summary, we believe that the WeWork debacle was a trial error, not a process error,” they said.
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