Morningstar - Q1 2020 - 18

Dispatches

A History of WeWork Pricing
Wellington Management (via Hartford)

Fidelity

T. Rowe Price

WeWork Price per Share
$120
$110.00 11/30/2018

$102.48 07/31/2018

90
$65.74 09/30/2018

60
30
0
11/2014

11/2015

11/2016

11/2017

11/2018

11/2019

Source: Morningstar Direct.

began in 2018, judging from the way three
prominent U.S. asset managers priced the
workspace-sharing company.
WeWork shares first appeared in stock funds run
by T. Rowe Price and Wellington Management
as a subadvisor to Hartford in December 2014 and
then in Fidelity equity portfolios in June 2015.
Wellington and Fidelity priced WeWork at $50.19
between February 2016 and February 2017.
By May 2017, all three firms had increased their
valuations-at different times-to $51.81.
Their prices largely agreed until July 2018, when
Fidelity's $102.48 peak was almost two thirds more
than Wellington's price on the same day.
Fidelity's dropped to $73.94 on Nov. 30, 2018, while
Wellington's valuation then hit $110 a share.
T. Rowe Price's appraisal of WeWork shares
in disclosed portfolios never reached such heights,
peaking at $65.74 on Sept. 30, 2018. The three
asset managers also disagree on trough
pricing. The WeWork valuations in their Sept. 30,
2019, portfolios vary so widely that Wellington's
$37.80 price tag was then more than twice
that of T. Rowe Price's $17.03. Even if T. Rowe
Price merits some credit for its restraint,
the broader and more important issue is not
whose valuation was better or worse, but that
valuations differed so much.
The Oct. 31 portfolios show a further decline, if
not confusion. A variable annuity fund that

18

Morningstar Q1 2020

T. Rowe Price subadvises priced WeWork
shares at $15.64. Meanwhile, two Wellingtonsubadvised Hartford funds valued their
WeWork shares at $14.55, on average, which
included pricing newly appearing WeWork
tenders at $19.19, WeWork convertible D shares
at $12.60, and WeWork A shares at $7.50.
Significantly, that was the first time since the
convertible D and A shares appeared in Hartford
funds' December 2014 portfolios that the firm
introduced a pricing difference between
these two share classes. In every other portfolio,
they had the same price.
Wide WeWork valuation discrepancies don't just
appear between firms, but within them
because of differing subadvisor relationships.
Hartford Capital Appreciation ITHAX, JHFunds2
Mid Cap Stock JHMSX, and Vanguard U.S. Growth
VWUSX all have different WeWork price per
share histories, even though each is subadvised,
at least in part, by Wellington Management.
Ultimately, the advisor is valuing the fund's
portfolio holdings, including private placements.
On May 31, 2015, Hartford Capital Appreciation's
$31.32 WeWork price was 88% more than
JHFunds2 Mid Cap Stock's $16.65 price for the
same shares, even though the same Wellington
team ran both funds.
WeWork may be an extreme example, but it isn't
the only one. In June 2016, Morningstar
data showed a wide range of valuations for

Airbnb series D and E shares: $88.44 per share on
the low end (Delaware) to $130.39 on the high
end (Wellington via Hartford and Vanguard funds).
Such sizable gaps that appear show the need
for some standard in the absence of a daily closing
market price. It is surprising that in the highly
regulated world of mutual funds such
divergent valuations can become incorporated into
funds' net asset values for purchase or sale by
retail investors.
These pricing issues won't have a big impact on
funds with modest, diversified private stakes.
They can get complicated, though, for funds with
concentrated private helpings that push
against the SEC's 15% cap on such holdings. It's
questionable whether the SEC should allow
vehicles that require daily liquidity to put so much
of their money in illiquid shares of private
companies, especially when they can be valued
so differently. WeWork's wild valuation ride
suggests the SEC should revisit both the 15% limit
on private placements and its guidelines on
pricing practices.
Alec Lucas, Ph.D., is a senior analyst with Morningstar
Research Services.

New Ratings Elevate
Importance of Fees
Morningstar introduced an enhanced Morningstar
Analyst Rating at the end of October. The
core idea of sorting out what funds can add
value over the long haul on a risk-adjusted basis
has not changed. Nor has the idea that fees,
people, process, and parent are the key drivers in
this fundamental outlook.
But we are getting more specific. Now, we are
attaching different overall ratings to different
share classes of the same fund if we think
the difference in price is meaningful enough to
affect the likelihood of outperformance versus
the benchmark.
Before this updated methodology, we rated funds
based on their asset-weighted sales-channel



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