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The Anatomy Of The Record Bonus Pool As The Foregone Conclusion: We Plug The Numbers From Goldmans Facebook Fund Marketing Brochure Into Our Models
This is part three of my opinion and analysis on Goldman’s apparent
ramp up of Facebook shares in the face of, and in direct contravention
to, SEC rules to the contrary. See Facebook Becomes One Of The Most Highly Valued Media Companies In The World Thanks To Goldman, & Its Still Private! and Here’s
A Look At What The Goldman FaceBook Fund Will Look Like As It Ignores
The SEC & Peddles Private Shares To The Public Without Full
Disclosure. For the first two installments. Here I will outline the
actual costs as reportedly explained in the fund marketing material, and
next I will illustrate the ramp ups in actual valuation, as compared to
the private equity vehicle mechanics that can prevent Goldman from
taking a loss, as was illustrated in the previous piece. Before I go on,
here a few interesting tidbits from the mainstream news flow:
Bloomberg: Goldman Sachs May Sell, Hedge Facebook Stake Without Warning to Investors
Goldman Sachs Group Inc.
clients considering whether to buy shares in closely held Facebook Inc.
should take heed: Wall Street’s most profitable securities firm could
unload its own holdings without letting them know. In the last sentence
of a one-page investment profile sent to private wealth clients, the
firm explains: “GS Group may at any time further reduce its
exposure to its investment in Facebook (through hedging arrangements,
sales or otherwise), without notice to the fund or investors in the fund.”… “There may be conflicts of interest relating to the underlying investments of the fund and Goldman Sachs,” according to the Facebook offering document’s disclosures section. Material in the documents “is not guaranteed as to accuracy or completeness.”
The phrasing in bold is all an astute investor needs to know in order
to come to the conclusion that Goldman itself should be treated as an
adversarial trading partner. For those with shorter term memories,
Bloomberg assists with the reminisce…
Goldman Sachs paid $550 million in
July to settle fraud charges filed by the Securities and Exchange
Commission relating to the 2007 sale of a mortgage-linked investment
called Abacus. The company said it made a “mistake” by failing to inform
clients in the 2007 deal that it allowed a hedge fund betting against
the investment to help put together the deal.
Here’s is what the privileged HNW clients get to pay in order to buy
the Facebook shares from Goldman with a retail brokerage price markup as
opposed from the actual secondary market sites that have popped up…
To get a stake in Facebook, Goldman Sachs clients are required to make a minimum investment of $2 million by Jan. 7 in what’s described as limited partnerships based in the Cayman Islands and Delaware. Goldman Sachs is charging 0.5 percent of any capital committed to the partnership as an “expense reserve” as well as a 4 percent placement fee and 5 percent of any gains, according to the document.
Facebook has more than 600 million
monthly active users, of whom more than 230 million access the site on
mobile devices, the document shows. Statistics available on Facebook’s
website indicate it has more than 500 million monthly active users and
more than 200 million access from mobile devices.
A letter addressed to “potential
investor” that introduces the Facebook investment profile ends with a
two- sentence paragraph. The first asks potential investors to contact a
Goldman Sachs representative for further information. The second says:
“Do not contact Facebook.”
Is it me, or is this deal expensive as hell? We are not even taking
into consideration the markup on the shares that Goldman is guaranteed
to make, which will probably trump all of the numbers above. For those
who don’t agree with my assertion that this is a RIPOFF tad bit costly, let’s plug said numbers into the online private equity model that I made available to subscribers in my last posting on this topic.
Basically, 'nuff said. If you don't get it by now, you actually
deserve to be one of those special Goldman clients that get access to
this very special fund to pay all of those very special fees. Again,
this is not hate on Goldman. More power to them for juicing the
marketing machine for all its worth. Goldman is the Apple of the
investing world. I'm sure if I worked for Goldman I would be doing the
same thing. The fact of the matter is that I don't work for Goldman and
I'm sure I can structure said investments in Facebook at those volumes
for a whole lot less., as can many other institutions.
Don't get me wrong. I don't necessarily think these investments will
crash and burn for the investor (LPs). Its really all a matter of
pricing, valuation and timing. It does appear evident that the LPs will
inevitably be trading against Goldman, though. You had better be ready
and prepared, and you won't have that management fee and markup to
cushion your fall like Goldman will. As a matter of fact, you will be
the one paying it.
Next up (on this topic), I will post another live online spreadsheet
model and opinion/analysis that gives an illustration of prospective
Facebook private equity valuations in anticipation of an IPO. I know I
said I would do it yesterday, but a glitch came up in the forensic
evaluation of a high leverage short candidate and 3 prospective yet
lesser known long candidates - all of which have set the team back a few
days. I am also working on a massive update to our European contagion
model. That is a lot of work for the blog, when I could be hyping
Facebook shares without full disclosure and registration to an
unsuspecting public at outrageous markups/fees who may have more money
to burn than spreadsheets to utilize, all with the intent of shorting the hell out of hedging positions at the very top of the hype marketing campaign, right? Okay, I'll stop - seriously!
Kudos to the Goldman team that put this together. It will be a
blockbuster deal if it passes muster with the SEC. I actually think this
is an ingenious and potentially very profitable set up.
- advertisements -
Watcj those fees, as vampire squid Goldman Sachs wants 4% fee up front, 5% free on the back and other fees as well. So you lose 9% before the word GO!
Yada yada yada----the most important issue today isn't foregone bonus pools to the top 1%. The mystery of the day is:
Did Becky Quick have an augmented reconstruction of the subcutaneous tissue between her clavicles, and diaphragm?
Hmmm, well SEC is "probing" but nobody is talking. If nothing else this is a fascinating arrangement. It seems that investors are either being asked or possibly required to hold their positions at least through 2013. The legality and implications of that alone are worth study. Reggie, I can't say how much it pleases me that you are all over this story which is patently guaranteed to break in interesting ways. Should be a valuable edu-macation for anyone who follows it. Thanks for making your analyses available, your work is deeply appreciated.
This is a message that I got from a BoomBustBlogger. If it looks like a bubble, smells like a bubble, and acts like a bubble, is it really an investment?
“Hey Reggie- good work on the model. FYI a client of mine was offered this and can confirm minimun investment is in reality 5MM because of demand. Crazy right”
I can't help but smell deja vu here.
As an unhappy player in one of the website pump and dump schemes that were so plentiful in 1996-98, this almost makes me nostalgic.
Private Internet property with a good story suddenly befriended by the "players." Pretend value of site suddenly explodes. Huge investment opportunity appears out of nowhere. Tens or even hundreds of millions of dollars invested by institutional funds. Many gala events celebrate the sudden discovery of the site's untapped potential. Much booze and food is had by all.
However, those inside the company who actually do the work know things are really out of whack. Lots of money has been spent on schmooze and booze, nothing in infrastructure.
Then the rumors start about the company having some financial problems. Investor's PR people deny these rumors, started by a few malcontents.
But one day, there's a public announcement. The company is broke and the investors have already fled sometime ago. No surprise to anybody still doing actual work, but a crushing blow to individual investors and pensions funds everywhere.
Been there, done that. I earned these emotional scars and a new point of view about life.
Be vewy, vewy caweful. They're hunting wabbits!
Of course, this time it's different. This time it's not a bunch of greedy, blood sucking leeches playing the public for suckers.
It's not just you Reggie, the deal is v expensive yet clients are falling over themselves to get involved. GS has priced it massively in their own favour. It occurs to me that the biggest consumers of facebook fall in the 15-30 demographic group; I wonder how many of the investors regularly or ever use facebook or if it's just their kids and grandkids who say it's great. Don't know many 15-30 year old's with 2 bucks to throw at a highly speculative investment.