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Rekenthaler Report

What's Uber Worth?

Probably not what your fund company says.

The Eye of the Beholder
On Friday, The Wall Street Journal ran a front-page story on mutual fund pricing, titled “Mutual Funds Flail at Valuing Hot Startups Like Uber.” The article revealed how mutual fund companies struggle to price the shares of private-placement securities that do not trade in the public markets. On June 30, 2015, for example, Fidelity valued the shares of Uber at $33.32, Hartford recorded a price of $35.67, and BlackRock was at $40.02. Same shares, same date, but three distinct prices.

That causes a problem for calculating fund performance. Consider the hypothetical case of a fund that invested 5% of its assets in Uber shares on Dec. 31, 2014, at a price of $18. (For example only, as we don't know what Uber was truly worth on that date, either.) Assume that the non-Uber portion of the fund’s portfolio has been flat for the year to date. By Fidelity’s accounting, that fund would be up 4.26% in 2015, thanks to the appreciation in its Uber stake. But BlackRock would say 6.11%.