Wealthy Morgan Stanley clients backing Uber's moves

According to the New York Times on Friday night, a deal is about to close on Wall Street which has seen wealthy clients of Morgan Stanley “piling” into a special fund that gives them a chance to invest in (or “bet on” as some reports suggest) Uber. The fund, called New Riders, is a relatively unknown contribution to the billions of dollars in capital that Uber has been raising in recent months. However, interestingly, investors in the fund are not being provided with any financial disclosures, so are reported to be “investing blind”. The investors are also not getting direct equity in Uber, only indirect equity through the fund, and as a result, are offered few protections.

Morgan Stanley is offering $475 million of new preferred stock in Uber to its clients, the people said, through a special fund that holds only those shares. These clients must have a net worth of at least $10 million and a minimum investment of $250,000. They are not allowed to invest more than 5 percent of their net worth.

Bank of America Merrill Lynch is also pitching Uber to its clients through a similar fund. The brokerage firm, however, requires an investment of at least $1 million and a net worth of $100 million, and its clients must have had $5 million in Merrill Lynch accounts for six months, people briefed on the Bank of America terms said. This may explain why Bank of America is expected to sell just $25 million worth of the deal, they said.

Representatives from Morgan Stanley, Bank of America and Uber declined to comment for this article.

Previously, institutional investors and others have plowed about $1.5 billion into the round, for a total deal of $2 billion or more, people briefed on the transaction said in December. The size of the round, and the allocation to individual investors, could still change based on demand, a person briefed on the transaction said.

People with deep pockets are often tempted to make risky bets, investing in hedge funds, private equity vehicles and, of course, in young private companies like Facebook, before it went public. And making such investments can often mean doing so without disclosures and certain protections.

But in some ways the Uber deal is asking even more of investors. The company has already raised $10 billion as a private company and has yet to give any indication of when it might go public. And despite raising large sums of cash, Uber has spent much of that expanding around the world — and is still losing money.