This Fund Owns SpaceX and Other Unicorns. It Soared From $9 to $100 in 2 Weeks.

The

Destiny Tech100

fund, run by investment firm D/XYZ, closed on its first day of trading on the New York Stock Exchange on March 26 at $9, nearly double its reference price (and net asset value) of $4.84. DXYZ started its meteoric climb shortly after that, soaring to an intraday high of $105 on Monday before plummeting more than 35% as of late day trading on Tuesday to close about $64.

That’s still sharply above its net asset value. What on earth is going on? Investors appear to be banking on the euphoria for new listings and are hoping that an investment in DXYZ is a backdoor way to invest in some of Silicon Valley’s top start-ups at pre-IPO prices. But the spike in DXYZ is nothing short of parabolic, a mania reminiscent of the dot-com bubble in the late 1990s.

DXYZ currently lists 23 companies as holdings and the largest weighting in the fund, by far, is in SpaceX, which makes up a whopping 34.6% of the portfolio. Musk has long maintained that an IPO of SpaceX isn’t likely soon, but there has been growing speculation that SpaceX could spin off its satellite internet unit Starlink through an IPO. So investors might be betting on a Starlink listing through DXYZ. SpaceX didn’t immediately respond to an email seeking comment.

Still, it isn’t exactly clear why the fund, whose investments had a fair value of just $52.6 million as of December, has skyrocketed in such a short period. The fund’s market value is now about $800 million. DXYZ has less than 11 million shares outstanding, so there is some scarcity value.

But investors buying DXYZ now are doing so mainly due to hopes that some of the fund’s high profile start-ups will one day go public and have a splashy Wall Street debut. Until then, it’s a waiting game. And returns have been lousy. DXYZ said in its annual report filing that it posted a decline of 7.3% in 2023 and has had an annualized loss of 23.2% since its inception in May 2022.

D/XYZ CEO Sohail Prasad told Barron’s that the fund, which acquired its stakes in pre-IPO companies through later stage rounds of venture capital financing as well as from existing investors such as employees, senior executives and VC firms, is “a reflection of how people really want this access and exposure to companies shaping the future.” That’s all well and good.

But it’s hard not to think of the excesses of previous market bubbles when you see just how dramatic the spike in DXYZ shares have been. The fund also is inherently risky given how heavily weighted it is in SpaceX, a company whose fortunes could rise and fall based on government contracts…not to mention the mercurial whims of Musk.

Prasad said the goal for the fund, as it name implies, is to eventually have 100 holdings. DXYZ will disclose new investments quarterly for now and Prasad said it may consider giving monthly updates to the portfolio as well.

There’s another potential risk for investors, although Prasad downplayed it. Samvit Ramadurgam, another D/XYZ co-founder who also worked with Prasad at Forge, an exchange for privately held companies, is suing Prasad, the parent company of DXYZ’s investment advisor and two directors of the company’s board claiming that he was improperly ousted from the firm. Prasad said the lawsuit, filed in January, poses no risk to the operations of the fund and the company added in a regulatory filing that “we do not expect that this lawsuit will have a material impact on the ability” of the advisory firm to “perform its duties and obligations.” Ramadurgam didn’t immediately respond to a request for comment.

But regardless of the legal drama, the volatility in DXYZ should be enough to keep all but the most risk-addicted investors away for now.

Email: paul.lamonica@barrons.com