Institutional investors take dueling approaches to Compass stock

BlackRock, Vanguard go on shopping spree; Citrone, Wellington cut losses

Discovery Capital Management's Robert Citrone, Compass' Robert Reffkin and BlackRock's Larry Fink (Getty, Legends4Legends)
Discovery Capital Management's Robert Citrone, Compass' Robert Reffkin and BlackRock's Larry Fink (Getty, Legends4Legends)

Compass’ steady stock slide since the residential brokerage went public 17 months ago has put a familiar question to big-name investors: is it time to buy or sell?

Wall Street’s so-called smart money has chosen to do both.

Institutional investors, who own two-thirds of Compass stock and range from conservative 401k managers to opportunistic hedge funds, have taken contrasting approaches: Some look to have cut bait by selling off the bulk of their holdings. Others have opted to buy the dip.

BlackRock, for one, has gone on a shopping spree.

The world’s largest money manager has amassed more than 3 percent of Compass stock, mostly over the last six months, according to data provided to The Real Deal by investment analytics platforms Simply Wall St and FactSet. That stake is now valued at about $44 million, compared to Compass’ current market cap of $1.43 billion.

Vanguard, which manages over $7 trillion in money, offers ownership of Compass in a variety of exchange-traded funds. Like BlackRock, it accumulated nearly all of its holdings in the brokerage, currently valued at about $106 million, in the last six months.

But there are two sides to every transaction, and the three largest trading days in Compass stock by volume have all come since the company’s share price hit $4.05 in May.

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Robert Citrone’s Discovery Capital Management is a notable seller, both given the volume of stock it has offloaded and its evangelism of Compass prior to its IPO.

The hedge fund, an early Compass investor which owned nearly 10 percent of Compass stock pre-IPO, bought some for as much $118 per share, according to prior TRD reporting and data from PitchBook. Discovery executed a selling spree over the last six months. Its current holdings are valued at $19 million, down from approximately $240 million, according to PitchBook.

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While Discovery sold 77 percent of its Compass stock in that time, the value of its investment declined by a disproportionate 93 percent, as Compass’ share price fell.

Since the start of this year, Wishbone Management and Wellington Management have sold 32 and 40 percent of their holdings respectively. Wellington led Compass’ $75 million Series D round in 2016, which valued the firm at $1 billion at a price per share of $42.6, according to PitchBook.

Compass’ largest shareholder continues to be SoftBank, the Japanese investment giant that co-led the firm’s Series F and G rounds. SoftBank recently disclosed that as of Aug. 5, its stake in Compass was down $540 million, and its losses have widened since then as the stock has fallen further.

Institutional investors now own over 75 percent of outstanding shares in U.S. markets, up from below 40 percent in 1980, according to research from the Darden School of Business at the University of Virginia.

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Compass declined to comment for this story. The firm’s stock, at $3.32 as of Monday afternoon, is down 65 percent this year, as it grapples with a slowing housing market that has also rocked many of its rivals – Anywhere Real Estate is down 40 percent and Douglas Elliman is down 55 percent. But some believe Compass’ share price declines are also a reflection of investors’ changing perceptions about the company.

“Valued as a tech company especially prior to its IPO, Compass has over time become valued more as a brokerage,” said Mike DelPrete, a residential real estate analyst at the University of Colorado and an investor in Compass rival Side.

But DelPrete said that the semantics didn’t really matter given the scale of Compass’ losses – more than $800 million between January 2021 and June 2022.

“Asking whether Compass is a technology company or a brokerage,” DelPrete said, “is like arguing what color a house is while it’s on fire.”