How Advisors Plan on Exposing Clients to SpaceX

To infinity, and beyond.

Aerospace and satellite communications giant SpaceX is expected to begin trading on the Nasdaq this Friday at $135 per share, valuing the company at roughly $1.8 trillion and making it the largest IPO in history. While investor demand is expected to be intense, advisors are not only taking on varied roles but also testing different approaches to client exposure. Some are buying in directly, others are relying on funds and a few aren’t touching the stock at all. Others are simply helping SpaceX employees manage concentrated, and valuable, holdings.

Give It to Me Straight

While most investors will eventually gain exposure to SpaceX through broad-market ETFs and mutual funds, many clients want to own the stock outright. “Some clients prefer holding individual stocks only,” said Tim Urie, chief growth officer at Legacy Edge Advisors. “We have some that don’t hold any ETFs or mutual funds.”

Urie’s firm also uses pre-IPO vehicles to give accredited investors access to private companies before they go public, a trend he expects to accelerate as firms stay private longer. “Pre-IPO vehicles will become more prevalent to cater to high-net-worth investors that want access to companies with strong growth potential that aren’t available in the public markets,” he told Advisor Upside.

Paper Millionaires

Thousands of current and former SpaceX employees already hold company equity, creating a different challenge: How to diversify without triggering a massive tax bill.

• More than 1,000 current and former employees have approached firms including Morgan Stanley and Creative Planning about managing their assets, Bloomberg reported. 
• The group, whose holdings are estimated to be worth as much as $20 billion, is reportedly seeking a discounted advisory fee of 0.5% rather than the traditional 1%.

For those clients, separately managed accounts may offer a solution, said Josh Rogers, senior client portfolio manager at Invesco. “SMAs have generally been seen as a great way to continue to get access to broader market exposure, and potentially some excess returns, while also getting tax benefits that can help clients be more flexible around selling,” Rogers said.

He noted that SMAs allow advisors to gradually reduce concentrated stock positions while using tax-loss harvesting to offset gains. Alternative strategies, such as options or exchange funds, may be less practical initially because options markets take time to develop liquidity and exchange funds often come with capacity limits and lengthy lockups.

Stay Light-Years Away. Some advisors are steering clear altogether. “IPO performance over the past few years hasn’t been particularly good,” said Bryan Byrer, founder of Millennial Financial Planning. Byrer argues that SpaceX’s valuation may be difficult to justify and cited a Morningstar estimate valuing the company at $63 per share, roughly 53% below the anticipated IPO price. He also noted that the investment products he uses emphasize profitability. “I’d be surprised if the stock got captured in any of the large-cap funds I use,” he said.