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Public pension funds stung by Facebook's falling stock

NEW YORK — Wall Street investors aren't the only ones feeling the sting of Facebook's falling stock. So are some of the country's troubled government pension funds.

Public employee retirement funds from around the country took part in the social networking juggernaut's May 18 initial public offering and plowed millions of dollars into Facebook stock before its value plunged.

Facebook shares continued their decline Friday, falling $1.03, or 5.4 percent, to a record low of $18.06, or less than half their $38 offering price.

Although public pension funds staked only tiny portions of their multibillion-dollar portfolios on Facebook's fortunes, the stock's poor performance has added to the funds' woes. Chronic underfunding and poor returns could lead pension funds to pursue riskier investments such as hedge funds, private equity funds, commodities and real estate, or even cut benefits for retirees.

Three pension funds have joined a class-action suit against Facebook and its underwriters. The lawsuit, filed in U.S. District Court in Manhattan, N.Y., alleges that lead underwriters led by Morgan Stanley gave only some select investors a heads-up that Facebook's revenue forecast had soured.

"We expect Facebook and the people who benefited from that sale to pay up," said George Hopkins, executive director of the Arkansas Teacher Retirement System, which has lost about $2.9 million on about 142,500 Facebook shares it has kept from the IPO.

The Arkansas teacher pension fund is part of a group of institutional investors that includes the Fresno County Employees' Retirement Association (estimated Facebook losses: $1 million) and the North Carolina Retirement Systems (estimated losses: $12.4 million). The group has filed papers seeking to become lead plaintiffs in the case.

The California State Teachers' Retirement System bought about 500,000 shares in the IPO — worth about $19 million — and sold them when the price briefly popped on the first day. CalSTRS made about $250,000 on the sale, a spokesman said.

CalSTRS has since loaded up on 1.2 million Facebook shares, a stake that has cost the pension fund about $17 million in paper losses.

"As a patient, long-term investor with a 30-year investment horizon we believe that over time, the stock and the company should perform well," CalSTRS spokesman Michael Sicilia said in an email.

Facebook's IPO was fraught with problems. First there was trouble with the Nasdaq Stock Market's trading system, which delayed the offering and then botched early trading, costing Wall Street brokerages an estimated $500 million. Then came revelations of selective disclosure about Facebook's declining fortunes.

The stock has since languished and could see more pressure as company insiders become eligible to sell more than 1.2 billion shares later this year.

Public pension funds stung by Facebook's falling stock 09/03/12 [Last modified: Monday, September 3, 2012 9:03pm]
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