By Hugo Dixon
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
LONDON — Glencore’s partners are eyeing a Goldman Sachs-style bonanza. When Goldman went public in 1999, the Wall Street firm’s 221 partners shared a pot worth $16 billion. That was an average of $72 million each. If Glencore launches its initial public offering later this year, there will be an even bigger jackpot for the 500 partners at the Swiss commodity trader: up to $60 billion, according to Liberum Capital. On average, that’s $120 million each.
In both cases, the Croesus-like riches reflect firms at the top of their game. Goldman was the world’s classiest investment bank. It didn’t just connect clients with capital; it also was aggressive in taking lucrative but risky proprietary positions. Similarly, Glencore isn’t just the world’s premier commodities trader. Nearly two thirds of its value is actually in proprietary stakes in mining assets.
But the similarities don’t end there. When Goldman was a partnership, retiring partners would cash in their stakes at book value. That’s also what happens now at Glencore. When Goldman went public, its shares were worth 3.3 times book value. That reflected the goodwill built up over more than a century. The generation of partners that took it public cashed in on the franchise value accumulated by previous generations. The same is now likely to happen at 37-year-old Glencore. Its estimated market value is three times its $20 billion book value. Ivan Glasenberg, the chief executive who is also the largest shareholder, and his fellow partners are the lucky generation.
Incoming Glencore investors might ponder on another similarity. Goldman’s IPO was launched in the heady days of the internet bubble. Its shares went on a roller-coaster, first soaring and then plummeting — before taking off again and collapsing in the more recent credit bubble and bust before again gaining ground. Despite all the volatility, investors that stayed the ride have done well: their shares have trebled.