Inside Baron Capital’s SpaceX ETF Party

It must be nice to have a biggest fan.

Investment company Baron Capital is one of the largest investors in Elon Musk’s aerospace technology company, SpaceX, with allocated assets currently sitting at about $10 billion. The firm also launched five new active products in December that are designed to mirror its strategies in private investment accounts and mutual funds, including the Baron First Principles ETF (RONB), which allocates 14% of its holdings to SpaceX. Along with two new ETF industry hires this week, the company is building on a larger trend of increasing retail access to some of the largest private companies in the US.

“It is not a surprise that investors are starting to include these companies in portfolios,” said William Snape, co-founder of the startup fundraising platform OpenVC. “It is actually long overdue.”

Solid, Less Liquid, Liquid

Baron Capital gets away with its SpaceX investments by treating the company as “less-liquid,” a classification that allows it to skirt an SEC rule against illiquid securities taking up more than 15% of a portfolio. The firm’s situation isn’t completely unique, said Adam Sabban, associate director of equity strategies at Morningstar, since there are a handful of other mutual funds and ETFs that hold SpaceX. “It’s not like they have a monopoly on [SpaceX],” he said, “but it is still relatively rare.”

Other investment vehicles that hold SpaceX include:

• The Entrepreneur Private-Public Crossover ETF (XOVR), which added SpaceX through a special-purpose vehicle last year.
• The Destiny Tech 100 ETF (DXYZ), a closed-end fund with nearly a quarter of its holdings in SpaceX.

I See an IPO. SpaceX is also reportedly considering an IPO later this year, which could lead the fund to lose some of its luster in the long term. “Once that happens and the market opens up, every other competing mutual fund or ETF can buy shares of it,” Sabban said. “But the ability to own it before it goes public is usually something that’s sought after.”