Even You Can Now Invest in SpaceX. But at What Price? --- An ETF just got its hands on shares of the private company. Good luck figuring out what it's worth.

"Psst! Wanna buy into Elon Musk's SpaceX?

An exchange-traded fund can do that for you.

But if you want to find out whether you're paying a fair price, good luck with that.

This matters not just to people who want to invest in SpaceX, but to anyone who's being pitched nontraded or "alternative" assets through ETFs. The stock and debt of private companies is nowhere near ready for continuous trading in public markets. SpaceX shows why.

On Dec. 3, a little fund called theERShares Private-Public Crossover ETF (ticker: XOVR) announced it had made privately held SpaceX its top holding. Like many outside investors, the ETF bought SpaceX through a special-purpose vehicle. An SPV is a private fund created to hold a specific asset. The fund paid $7.5 million, the equivalent of $135 per SpaceX share, says Joel Shulman, ERShares' founder and chief investment officer.

On Dec. 12, XOVR publicized an additional $10 million purchase, raising its stake in the SpaceX SPV to 12% of the fund's total assets. It paid an "implied" $185 a share on Dec. 11, says Shulman.

"Very fortuitously," he says, SpaceX offered shares to private investors at $185 apiece at almost the same time, valuing the entire company at around $350 billion. XOVR then marked up its SpaceX position to $185, an instantaneous gain of 37%.

Investors desperate to own SpaceX poured more than $90 million into XOVR in December, nearly doubling the ETF's total assets. Mainly thanks to that new money, the fund now manages about $250 million. More than $20 million of that is in SpaceX -- about 8% of the fund's assets, down from the earlier peak of 12%.

Demand for shares in SpaceX is so intense that SPVs holding SpaceX as their sole or main asset may charge fees as high as 25% of any gains. Shulman declined to elaborate on the fees XOVR may pay or how that affects the value of its SpaceX position.

As a private company, SpaceX reports little to no financial information. Figuring out what the stock is worth is a guessing game.

This past week, several online marketplaces that attempt to match buyers and sellers of private companies listed SpaceX at wildly divergent prices.

EquityZen displayed what it called a "highest qualified bid" of $150. Nasdaq Private Market said "the secondary market is currently valued at $182.01," a 2% discount from the $185 a share SpaceX raised in December.

Rainmaker-X, another such marketplace, showed two lots of SpaceX for sale at $207.05 and $209.51 a share -- and five buy orders, one at $115.50 and the others at "best price."

In public markets, even a 1% gap between the bid (or offer to buy) and the ask (or offer to sell) is unusual. The gap between the lowest bid and the highest ask for SpaceX on these private marketplaces this past week was roughly 80%.

Sure, SpaceX is probably worth more than $115.50 a share; that's probably a bid from a bargain hunter hoping to find a panic seller. But is it worth $182.01? $185? $207.05? $209.51? Who knows?

Shulman says he's confident XOVR's valuation of $185 a share is accurate for now. "We're not going to be misrepresentative by putting prices out there that have no basis," he says.

Asked exactly how the fund will figure out what its SpaceX stake is worth, Shulman says many asset managers are scrambling to solve the problem of how to value private assets in a public fund -- and he believes XOVR has developed a combination of methods that can work.

Securities and Exchange Commission rules require mutual funds and ETFs to value their holdings with market prices when those are "readily available." If not -- as with private companies like SpaceX -- funds must arrive at a "fair value" determined in "good faith." How much detail the funds provide about those valuation methods, however, is largely up to them.

Dave Nadig, a veteran ETF analyst, says that XOVR could trade a little of its SpaceX stake at random intervals, then publish the resulting prices for the public market to use as a reference for valuing the private venture.

"We considered this option and it's one of the things we're looking at," says Shulman. "We use multiple ways to evaluate a private company, and that could be one mechanism."

But how big does a trade in a $350 billion company have to be to make a price authoritative? "If somebody trades one share up 100%," asks Nadig, "does that make SpaceX worth $350 billion more than it was one second earlier?"

Another issue: In a market crash, XOVR would have to sell its most liquid holdings, such as Alphabet, Nvidia, Meta Platforms and Oracle, to meet redemptions if investors panicked. That might leave remaining shareholders owning little but SpaceX -- which isn't readily tradable.

A mutual fund can mitigate that risk by shutting out new investors before a flood of money makes the fund so big that it can't handle a sudden exodus. ETFs, by design, can't close to new investors -- even though, in a press release last month, XOVR said it would when it reached $500 million in assets. Shulman says that was "poorly worded" and "wrong," adding that "we meant to imply that at $500 million we would limit further purchase of private equity" such as SpaceX.

How, then, is XOVR managing the risk from a potential run of redemptions? "This is the key question everyone's trying to address," says Shulman, "and we have a proprietary mechanism to handle it" -- which, again, he declines to disclose for competitive reasons.

"We're going to be able to meet the needs of the investors if we need to meet them," he says.

In other words, trust us.

If the investment industry wants to sell private assets to the public, it had better do better than this -- a lot better." [1]

1. EXCHANGE --- The Intelligent Investor: Even You Can Now Invest in SpaceX. But at What Price? --- An ETF just got its hands on shares of the private company. Good luck figuring out what it's worth. Zweig, Jason.  Wall Street Journal, Eastern edition; New York, N.Y.. 25 Jan 2025: B2.