Sequoia Takes Facebook Stake After `Recent Controversy'

(Bloomberg) -- The $4.2 billion Sequoia Fund bought a small position in Facebook Inc. as the stock slid late in the first quarter, investment manager Ruane, Cunniff & Goldfarb told clients.

“The recent controversy enabled us to purchase a very unusual business franchise riding several powerful secular trends at a price-earnings multiple only a little higher than that of the overall stock market,” Ruane’s investment committee wrote in a letter dated April 5.

Facebook has tumbled 15 percent since the company disclosed in mid-March that it may have shared the personal data of tens of millions of users with Cambridge Analytica, a research firm that helped elect President Donald Trump. The social-networking giant’s fundamentals remain intact even as its equity valuation has fallen, according to Eric Bannasch, founder of the $1.4 billion hedge fund Cadian Capital Management.

Shares of Facebook are up 0.8 percent in pre-market trading after Keybanc said checks with advertisers suggest the “news flurry has had no meaningful impact" on current or planned spending.

Sequoia, the mutual fund seeking to rebound after holdings in Valeant Pharmaceuticals International Inc. dragged down returns in 2015 and 2016, is also an investor in two other members of the FAANG complex that have seen their market values pull back in recent weeks. The fund boosted its stake in Google parent Alphabet Inc., making it the largest position at 11 percent of the portfolio as of March 31. Amazon.com Inc. is the seventh-biggest holding.

Other new positions last quarter include Vivendi SA, on the growth of what the fund managers called its “crown jewel,” Universal Music Group, as well as Naspers Ltd. and Liberty Broadband Corp., thanks to their large interests in China’s Tencent Holdings Ltd. and U.S. cable company Charter Communications Inc., respectively.

CarMax, Berkshire

Sequoia increased its stake in CarMax Inc. and trimmed positions in Warren Buffett’s Berkshire Hathaway Inc. -- now its second-largest holding -- as well as Wells Fargo & Co., Constellation Software Inc., Jacobs Engineering Group Inc., MasterCard Inc. and TJX Cos.

The fund exited Chipotle Mexican Grill Inc., Dentsply Sirona Inc., O’Reilly Automotive Inc. and Waters Corp., according to the letter.

Sequoia, which produced one of the industry’s strongest long-term performance records before the Valeant debacle, generated a total return of 1.3 percent in the quarter, outperforming the S&P 500 Index.

Earlier this year, New York-based Ruane said the firm would convert to a limited partnership and that John Harris would become its first managing partner as it eliminated the chief executive officer position held by David Poppe.

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