Cautious wealthy investors shrug at web major's IPO

New York: Wealthy investors aren't clamouring for a piece of Facebook Inc's initial public offering (IPO) because some own the stock through private transactions while others shy away from risky technology deals, according to advisers.

"It's kind of the late arrivals who get excited around the time of the IPO," said Jason Thomas, chief investment officer of Aspiriant, whose clients on average have about $10 million (Dh36.7 million) under management with the Los Angeles-based firm. "Our clients remember the tech bubble very well, and are appropriately sceptical of being the last money in."

Facebook, the world's biggest social-networking service, filed on Tuesday to raise as much as $5 billion in the largest internet IPO. Morgan Stanley, Goldman Sachs Group Inc, JPMorgan Chase & Co, Bank of America Corp, Barclays Plc and Allen & Co were hired to handle the deal for the company. The $5 billion figure is a placeholder used to calculate fees and may change.

Based on recent IPOs, investors who are able to buy in at the offering price once it's determined could be looking at below-average returns if they seek to buy and hold. They may face a large tax bite if they sell into an early run-up in the stock price.

Ed Reinhart, 41, holds about 5 per cent to 10 per cent of his personal portfolio in Facebook after buying shares in 2010 through SharesPost Inc, a secondary market for private-company stock. He said he likes the company's revenue-growth prospects and isn't looking to increase his position in the initial offering. "You don't want to buy into the hype," said Reinhart, who lives in Yakima, Washington, and is a managing partner for Capital Advisors Wealth Management, which works with institutional retirement plans. "I think it would be very wise for individual investors to stay back and let some of this steam escape, and see where all of this shakes out."

SharesPost and SecondMarket Holdings Inc facilitate transactions in private-company stock for accredited investors. That generally means individuals with assets of greater than $1 million or those earning more than $200,000 annually. SharesPost has offered transactions in Facebook shares since 2009.

Investors holding private-company stock at the time of an IPO generally are not permitted to sell their holdings for a certain period of time after the offering, generally as long as 180 days, according to Tim Sullivan, managing director of SharesPost.

2011 move was halted

Goldman Sachs in January 2011 halted a planned offering of Facebook shares to US investors on concerns that media attention about the deal could violate rules limiting the marketing of private securities. Instead Goldman Sachs restricted the offering to non-US investors, with Facebook raising $1.5 billion through Goldman Sachs clients and funds along with Digital Sky Technologies.

Some clients of Constellation Wealth Advisors LLC have invested in Facebook through venture-capital funds or the secondary market, said David Arizini, a managing director and partner at the firm in Menlo Park, California, whose investors generally have at least $10 million in investable assets.