Vanguard fund marks down Uber shares

Pricing nontraded shares is often more art than science

Feb 2, 2018 @ 1:46 pm

By John Waggoner

Vanguard marked down the investment its U.S. Growth Fund (VWUSX) had made in Uber Technologies Inc. by 15.8% in the fourth quarter — an indication of the problems funds can encounter when dabbling in so-called unicorn technology stocks.

For last year as a whole, Vanguard marked down the fund's Uber investment by 28%, moving its price per share down to $35.10 from $48.77 at year-end 2016, said Dan Wiener, editor of The Independent Adviser for Vanguard Investors,a newsletter.

For shareholders, the Uber effect is infinitesimal: the ride-sharing app's shares represent just 0.6% of U.S. Growth's $8.47 billion in assets.

Nevertheless, the fund's Uber woes represent the dangers of dabbling in untraded high-tech company shares. Because they are untraded, funds often book their purchases at the offering price, then use a variety of ways to value the shares. In Vanguard's case, it's an independent committee that's separate from fund managers.

"When calculating the fair market value of a company, this committee considers a number of factors including offering price, financial performance, market conditions, corporate actions, and guidance from external advisors," Vanguard spokesperson Laura Edling said in an email. "While we can confirm Uber's share price did decrease, we cannot comment further on the valuation of specific securities."

The U.S. Growth Fund also has several other private holdings, including Airbnb Inc., Pinterest preferred stock and WeWork Cos. Inc. stock, said Jeffrey DeMaso, co-editor of the Independent Adviser for Vanguard Investors. Vanguard International Growth (VWIGX) has small stakes in Spotify Technology, Flipkart and HelloFresh.

While Vanguard's website notes that its funds may invest up to 15% of their assets in restricted securities with limited marketability or other illiquid securities, its holdings of those types of securities are extremely modest. Vanguard is not alone in dipping into the pre-IPO market. Fidelity, T. Rowe Price and other major fund companies have dabbled in the area.

The problem is that initial valuations in the pre-IPO market are often overly optimistic. A recent study at Stanford University, "Squaring Venture Capital Valuations with Reality," showed that overvaluations can reach 100% or more. Consider Square, the internet payments company, whose venture financing round put the company's value at about $6 billion. It went public at $3 billion in 2015.

Similarly, while investors valued Dropbox at $10 billion in 2014, fund firms including Fidelity, BlackRock and USAA have marked the stock down since then. The company confidentially filed for an IPO this year.

(More: Tax reform will boost food, chemicals, rail stocks. Technology? Not so much)


What do you think?

View comments

Recommended for you

Featured video


What it took to win an Excellence in Diversity & Inclusion Award

Editor Fred Gabriel and special projects editor Liz Skinner explain how InvestmentNews chose the winners of our inaugural Excellence in Diversity & Inclusion Awards.

Latest news & opinion

As Ameriprise case shows, firms on hook when brokers go bad ​

The SEC will collect $4.5 million from the brokerage firm for failing to supervise brokers who were ripping off clients.

10 highest paid professions in America today

These are the top-paying jobs in the U.S., according to Glassdoor.

Ameriprise to pay $4.5 million to settle SEC charges that five reps stole more than $1 million from clients

Agency censures firm for not protecting clients from thieving brokers.

SEC slaps Lockwood with $200,000 fine over unseen trading costs to clients

Clients were forced to pay fees in addition to the usual wrap charges, the regulator maintains.

Gotcha! 10 lessons from brokers gone bad

These cases show why regulators nabbed reps and firms, and how to avoid their fate.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print