Bono, the Irish rock star, has put significant money into Elevation Partners, arguably the worst run institutional fund of any size in the United States. Bono is listed as one of the five members of the firm’s investment team. The fund claims that its “mission is to help media and entertainment businesses develop and market great content.” In the process, it has made an unprecedented string of disastrous investments which even bad luck could not explain.

The most well-known of the Elevation investments is Palm (PALM) which made a completely unsuccessful run at the smartphone business dominated by Apple (AAPL), RIM (RIMM), and handsets powered by the Google (GOOG) mobile operating system known as Android.  Wall St. had hoped that Palm’s new line of Pre handsets would allow the company to be a modest competitor in the industry. It has, instead, burned through large amounts of money and, ,by its own admission, is in trouble as it tries to reach what were fairly modest sales goals. Elevation was recently quoted by Reuters that it still has faith in Palm, a company in which it bought a 25% stake in 2007. It is astonishing that Elevation would publicly say it still has faith in a company which is close to non-existence. The results of Palm’s latest earnings release drove its shares down to $3.65. The stock traded at over $18 last September. Elevation has a total of $460 million in Palm. Whitney Tilson, managing partner of T2 Partners, a New York-based hedge fund, recently told MarketWatch, in reference to Palm, “There is a 90% chance that they go bankrupt or get acquired within a year.”

In 2006, Elevation invested in Forbes Inc., owner of the famous business magazine. Reports about the deal say that Forbes was divided into two pieces at the time of the investment and that the Elevation money went into the media company’s online operations. The amount of the investment is around $300 million, according to several experts.  The total value of Forbes Inc. was about $750 million at the time.  Business magazines have been badly damaged by the recession and the movement of readers from print to the internet. The value of Forbes’ larger competitor, BusinessWeek, dropped to $5 million that Bloomberg paid for it last November. BusinessWeek lost $40 million in 2009. Forbes may have done somewhat better than that, but the value of the family controlled business that was once run by Malcolm Forbes has dropped by at least 80%. Elevation owns an illiquid investment in a media company that is now worth perhaps $100 million.

Another of Elevation’s investments is Move.com (MOVE), the owner of a series of home and real estate websites. The company’s last proxy statement shows that the investment firm owns 26.7 million shares or a little less than 15% of Move. Elevation put $100 million into Move in November 2005. Move.com shares have lost about 50% of their value since then. Last year, Move had a net loss of $7 million on revenue of $212 million. The market value of the firm has dropped to $340 million and the stock trades at just above $2.

Elevation put $25 million into local business review site, Yelp, in January. The fund said it would raise its stake as high as $100 million through the purchase of additional shares. Yelp reportedly turned down a $500 million buyout from Google (GOOG). The search company is fortunate that its offer was rejected. Yelp’s San Francisco operation was sued last month charging that the services it provides are fraudulent. Yelp allegedly offered companies which got bad user reviews the opportunity to have them removed from the site in exchange for the purchase of advertising. ABC News recently reported that “since late February, at least three lawsuits seeking class action status have been filed against the site by a dozen companies, complaining that reviews are manipulated depending on which companies advertise on the site and which ones do not.” It may take years for the suits to be resolved, but Yelp’s image is permanently damaged. It is impossible to calculate how much Yelp’s value has dropped because it is a private company, but finding a buyer for the company now at any price is unlikely.

Bono has lost a great deal of money by investing with Elevation, certainly millions and millions of dollars. The Irishman would have been better off in CDs of the financial sort.

Douglas A. McIntyre

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