Fun with Rumors: CIC and Facebook

Ashby Monk

I love a good CIC rumor. In fact, I’ve been writing posts on CIC rumors for over three years (mostly on funding issues). There’s really nothing like some “unnamed sources” to generate fascinating headlines about the Chinese sovereign fund. Granted, the stories are almost always wrong, and the news consumers (i.e., us) are typically left totally uninformed and more confused. But it’s exciting while it lasts! Right?

Well, here’s another one: Last week we “learned” from an anonymous insider that the China Investment Corporation was positioning itself to buy a big stake in Facebook. (Here. We. Go!) This blurb from the Business Insider column is what started it all:

“China wants to buy a huge chunk of Facebook, a source at a fund that buys stock from former Facebook employees tells us. This source learned of China’s interest when it approached him to see if he could help put together a stake large enough “to matter.” Separately, a second source tells us there is a rumor going around Facebook that Citibank is at this very moment trying to acquire as much as $1.2 billion worth of Facebook stock on behalf of two sovereign wealth funds –  China’s and another from the Middle East. Another source from an investment bank that is very influential in Silicon Valley says he’s also heard a rumor about Citibank’s interest on behalf of China.”

Wow. As far as rumors go, that’s a really good one. In fact, the author actually writes about two rumors as if they were news; one from inside Facebook and another from a banker. I’m literally chuckling. Anyway, the fact that this is just a rumor — and most CIC rumors are false — hasn’t stopped some people from using it as an opportunity to sound a bit crazy. Still, let’s assume this investment is taking place (which it probably isn’t); what’s going on?

Some are suggesting that this is a strategic play by China to control social media or steal technology. That’s really hard for me to believe. After all, the CIC would own less than two percent of Facebook’s non-voting stock, which means that it wouldn’t have any governance rights at all. How is that strategic?

No, the only reason I can see why the CIC would be interested in this investment is to make a quick buck; the IPO is rumored to be shaping up to be $100 billion. The company is currently valued at $70 billion. So maybe some CIC portfolio managers thought they’d see whether a portfolio of Facebook stock could be acquired that would allow the Chinese SWF a chance to profit from the social media bubble (before it bursts?). This individual reached out to a few contacts (such as SecondMarket and Citi) to see what was possible, and, boom, a rumor was born.

And, even then, it’s still hard for me to believe my own explanation because it would mean the CIC is investing over a billion dollars in a company that is literally banned from operating in China. That just sounds off to me.

3 Responses to “Fun with Rumors: CIC and Facebook”

  1. 1 MMcC July 6, 2011 at 5:07 am

    We use a file of old CIC rumours to teach new analysts why we don’t trust press reporting. Lesson 1: the summer lull. Always nice to have some new cuttings for teaching purposes.

  1. 1 The Daily Brief « Oxford SWF Project Trackback on September 1, 2011 at 5:59 am
  2. 2 The Daily Brief « Oxford SWF Project Trackback on December 23, 2011 at 7:45 am

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This website is a project of Professor Gordon L. Clark and Dr. Ashby Monk of the School of Geography and the Environment at the University of Oxford. Their research on sovereign wealth funds is funded by the Leverhulme Trust and The Rotman International Centre for Pension Management.

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