A recently listed closed-end fund has surged more than 1,500% above its net asset value since its debut, as investor enthusiasm for stakes in companies like SpaceX and Anthropic PBC, which are expected to go public, has propelled the fund's market capitalization far beyond the estimated value of its portfolio.
Shares of the Fundrise Innovation Fund, trading under the ticker VCX, rose 64% to $314.99 on Tuesday—only their fourth day of trading—and were temporarily halted twice due to volatility, reminiscent of the meme stock phenomenon. With the majority of the fund's shares locked up under an agreement, investors bid up the limited available supply to more than 16 times its recent net asset value per share of $18.97.
The fund, which also holds shares in OpenAI Inc., Anduril Industries Inc., Databricks Inc., and Ramp Inc., filed with the US Securities and Exchange Commission to become a publicly listed closed-end fund nearly five years after its inception, aiming to unlock potential value and enhance liquidity.
For the fund's approximately 100,000 investors who purchased shares before the market debut, those acquired before February 20 are restricted from sale for six months following the listing. A spokesperson stated that Fundrise Innovation manages about $679 million in assets, with over 10% of the fund not subject to lockup restrictions.
The key question for potential buyers is whether the substantial trading gains reflect a widespread belief that the high-profile startups in VCX's portfolio will achieve even higher valuations upon going public, or if the current enthusiasm is a temporary frenzy that may fade when lockup periods expire.
"At these premium valuations, the potential for upside has disappeared," said Jack Shannon, equity strategies principal at Morningstar Inc. "While it may attract speculative traders, for long-term investors, it represents a poor investment at the current price."
Ben Miller, CEO of Fundrise—the alternative investment platform backing VCX, with $3.5 billion in assets under management—envisions funds like VCX, which he terms public venture companies, becoming an increasingly significant market segment. This trend is especially relevant as many companies opt to remain private for longer periods.
"I expect companies to stay private until they reach substantial size, and I don't see that changing," Miller commented.
The world's largest private company is advancing toward an initial public offering. Reports indicate SpaceX could raise up to $50 billion in what would be the largest listing ever. Such a move could pave the way for IPOs of artificial intelligence firms like Anthropic and OpenAI, potentially rewarding early private shareholders handsomely.
VCX is not the only publicly traded closed-end fund with positions in sought-after pre-IPO companies, though its peers have not attracted similar investor excitement. Earlier this month, Robinhood Markets Inc. raised $658.4 million for a closed-end fund holding Databricks and Ramp shares, falling short of its $1 billion target. The fund has mostly traded below its initial offering price of $25.
Destiny Tech100 Inc., a venture-focused closed-end fund with SpaceX as its largest holding—representing 16% of its portfolio—generated significant excitement upon its 2024 debut. Its shares closed at $26.52 on Tuesday, down nearly 75% from their peak.
Miller stated that Fundrise has no immediate plans to capitalize on VCX's soaring share price to raise additional capital. "We are pioneering this space, so we are taking it one step at a time. Any future fundraising would be driven by specific investment opportunities," he explained.
On Monday, the fund announced an investment in Erebor Bank, a technology-focused lender founded by Anduril co-founder Palmer Luckey.
Investors who participated in a pre-listing round on the Fundrise platform, limited to $10,000 per person, are not bound by the six-month lockup period. These shareholders are among the few who can currently realize profits.
"This is advantageous for investors looking to exit, but for new entrants, they are paying a significant premium to net asset value," noted Matt Malone, head of investment management at Opto Investments, a private markets wealth platform. "It highlights the transition from private to public markets, where public pricing is often seen as the benchmark. In this instance, however, the public market valuation appears disconnected from fundamentals."
Comments