It's My Own Private IPO.
Just days after announcing a private investment placement that values Facebook at $50 billion, Goldman Sachs' controversial fund is already oversubscribed, The Wall Street Journal reported late Wednesday. The platinum-plated Wall Street titan will not seek any further investments after receiving orders worth several billion dollars, the paper said.
That strong response from Goldman's wealthy clients appears to have far exceeded the $1.5 billion the bank had planned to raise, and leaves absolutely no doubt that the appetite for a piece of the world's largest social network -- still a private company that outsiders can only speculate brings in a reported $2 billion a year -- is voracious.
"It's a blowout," The Journal quoted one Goldman employee as telling an investor.
An offering document for the fund said Facebook made a profit of $200 million in 2009 on revenue of $777 million, but did not list disclose 2010 revenue, though industry experts have pegged it at $2 billion, the paper said.
Goldman's Facebook fund is aimed at the most elite investors in the world, Goldman's own Private Wealth Management clients, who must have a net worth of $10 million to even get a call-back. The minimum investment in the Facebook fund is $2 million, which means that Goldman's money managers probably won't allow any client to invest who is worth less than $30 million, according to The Journal.
“We’re hearing that the bigger clients will get the largest allocations and the smaller client may get little or none,” one financial adviser working with several Goldman clients told the paper. “But that’s not unusual in this business. They want to treat their biggest clients best.”
Demand is so intense, in fact, that Goldman has already started rejecting those clients who want to invest at the $2 million minimum, according to Fortune.
The bank has proposed a so-called "special-purpose vehicle" that would allow its high-net-worth clients to invest in Facebook.
The SEC has launched an inquiry into whether the deal is designed to avoid rules aimed at protecting investors. The structure of Goldman's fund would appear to avoid triggering federal rules that require companies with more than 500-shareholders and $10 million in assets to file quarterly and annual reports with the SEC.
Some experts have observed that the fund appears to allow Goldman Sachs and Facebook to avoid SEC disclosure rules, and allow Facebook to remain private for as long as possible, but still make it easy for Goldman's rich clients to invest in the company.
The report contains some new details about the nature of Goldman's fund. For example, Goldman is expected to take fees of 4 percent up-front, and then 5 percent of any gains, the paper reported. So for example, if the fund were increased to $3 billion to accommodate the heavy demand from Goldman's clients, the bank would pull in $120 million at the outset, just for being, well, Goldman Sachs.
Fund participants must lock in their investments for two years, until 2013. Facebook is widely expected to file for an initial public offering, underwritten by none other than Goldman Sachs, in which it will sell shares to the general public, probably in 2012.
If the IPO performed well, as it is expected to do, Goldman's clients stand to profit handsomely. The bank, of course, would reap more fees from any gains as well as the IPO itself.
And of course, no such fund would be complete without ample opportunity for Goldman Sachs partners, the 500-or-so most elite figures in finance, to get a piece of the action -- on preferential terms, naturally. For example, Goldman partners aren't subject to the $2 million minimum investment, though many surely will invest more than that.
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