Private equity, once the domain of the uber-rich, has become more accessible to retail investors over the last few years. Investing in general has become easier and more democratic as trades have become fee-free and can be accomplished in a second with the click of a button.
Some investment companies tout their access to private equity through funds that the retail investor can buy into. SoFi Technologies, for example, provides access to several private equity funds, including Cathie Wood’s Ark Venture Fund (ARKVX 1.66%), which opened in 2022. Ark says that its purpose is to “open the doors of one of the world’s most exclusive asset classes to every investor, not just the privileged few.”
While these funds have become popular ways to invest in private companies, the upcoming SpaceX initial public offering (IPO) has investors stampeding to find all sorts of ways to access it before it goes public, and Ark Invest’s fund just hit $1 billion in assets under management.
Access to private equity
The Venture fund is available for direct investing through SoFi or wealth management firm Titan and through wealth advisory programs on different platforms. It invests in private equity and some public companies, and its largest position is in SpaceX, which accounts for 11% of its weight. Other high-profile companies it’s invested in include OpenAI, Anthropic, and Databricks.
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Assets under management reached $1 billion at the end of May, up from $711 million at the end of March, before SpaceX announced it would go public. That means it expanded by nearly 40% over the past two months as investors race to get in before the initial public offering.
The fund has outpaced the S&P 500 since inception, with a 29.1% annualized gain versus the benchmark’s 19.3%. No wonder it’s attracting retail investor attention.
Is this the way to invest in SpaceX?
However, the fund is a risky investment. SpaceX is planned to be the largest IPO ever, and shares have been set, for now at least, at $135. That would raise $75 billion for the company and give it a valuation in the top 10 most valuable companies in the world. It would also make each worth around 100 times sales, or a sky-high premium.
There’s a strong chance that the stock could fall in the early stages of trading. The other companies that go public in a high-profile debut could suffer a similar fate.
And regarding its outperformance, it has a limited lifespan, all of which has been in a thriving bull market. The danger of that is investors won’t necessarily be able to pull their money out if things go sour. It’s an interval fund, meaning investors can sell only during certain periods.
For investors who don’t want to give up on SpaceX exposure right now, there are safer ways to get it. One lower-risk path is an investment in Alphabet, which has a 6.1% stake in SpaceX, according to Bloomberg.
Investors might also consider exchange-traded funds (ETFs) that track indexes, like the Invesco QQQ Trust, which could provide access in a safer package when Nasdaq adds SpaceX stock. Nasdaq-based ETFs will add SpaceX relatively quickly, but index funds that track the S&P 500, such as the classic Vanguard S&P 500 ETF, won’t be able to add it until 2027.