Full Breakdown
SpaceX Investment Raises Questions About ETF Structure and Liquidity
3/7/2026, 6:03:50 AM
The Core Event: SpaceX's Dominance in ERShares ETF
The ERShares Private-Public Crossover ETF (XOVR) has seen its investment in SpaceX surge to over 40%, raising concerns about the viability of exchange-traded funds (ETFs) holding significant stakes in private companies. This unprecedented concentration challenges existing regulatory frameworks, particularly the U.S. Securities and Exchange Commission's (SEC) limit of 15% for illiquid securities in open-ended funds.
Background & Context: The Rise of Private Assets in ETFs
In recent years, there has been a growing trend among fund issuers to incorporate private assets into ETFs, aiming to provide retail investors with easier access to private markets. However, this shift has led to a liquidity mismatch, as ETFs are designed for daily trading while private assets often have limited market activity. XOVR's substantial investment in SpaceX, valued at approximately $205 million, exemplifies this tension.
Key Figures & Groups: ERShares and SpaceX
Joel Shulman, founder and chief investment officer of ERShares, has acknowledged the challenges posed by the fund's SpaceX position but has expressed confidence in managing it. Despite the high-profile investment, XOVR has struggled to keep pace with broader technology stocks, returning only 12% last year compared to the Invesco QQQ Trust Series 1's 21%. The fund's assets have also declined significantly, dropping from $1.8 billion to under $600 million.
Official Statements & Responses
In response to the growing concerns, ERShares has updated XOVR's prospectus to include enhanced risk warnings related to privately offered securities. Shulman emphasized that the new disclosure language does not indicate a change in the quality of the underlying investment. The SEC has not commented on XOVR's exposure to SpaceX, leaving the regulatory landscape somewhat ambiguous.
Criticism & Opposition: Concerns Over Liquidity and Valuation
Critics, including Jeffrey Ptak from Morningstar, have raised alarms about the implications of holding illiquid assets in a daily-traded vehicle. Ptak noted, “It makes me more dubious about the proposition of stuffing hard-to-trade assets into daily-liquidity vehicles like ETFs.” Additionally, inconsistencies in how ERShares values its SpaceX stake have been highlighted, with some suggesting that the valuation may not accurately reflect market conditions.
Conflicting Reports & Gaps: Valuation Discrepancies
While ERShares has pegged the value of its SpaceX stake at $205 million based on a $1 trillion valuation for the company, critics argue that this figure may not hold if market conditions change. The Baron First Principles ETF (RONB), which also invests in SpaceX, has faced similar challenges, at times exceeding the SEC's illiquidity threshold but classifying its holdings as "less liquid," which lacks strict percentage limits.
What's Next: Future of Private Assets in ETFs
As interest in private companies like SpaceX continues to grow, the debate surrounding the integration of such assets into ETFs is likely to intensify. With SpaceX potentially targeting a public listing in 2026 at a valuation of around $1.5 trillion, the implications for XOVR and similar funds will be closely monitored by investors and regulators alike. The ongoing scrutiny may lead to further regulatory adjustments regarding the classification and management of private investments within ETFs.
