Approximately ten days ago, a private jet bearing the SpaceX logo transported nearly 200 investors from top-tier Wall Street funds from Newark, New Jersey, to the southern tip of Texas for a multi-day executive roadshow. According to participants, the aircraft was over capacity, unable to accommodate everyone who wished to board.
The impending large-scale IPO of Elon Musk's rocket and AI company is compelling fund managers to make a series of interconnected decisions. They must first determine their desired allocation of SpaceX shares, then estimate the actual allotment they might receive, followed by raising cash or liquidating existing holdings to fund the purchase, and finally rebalancing their portfolios after the new stock is added. Upon listing, SpaceX is projected to immediately enter the top ten global companies by market capitalization, with a potential valuation reaching $1.5 trillion.
It is noteworthy that SpaceX recorded a net loss of $49 billion last year following its acquisition of xAI and consumed significant cash reserves. Its growth is heavily reliant on the world's most powerful launch vehicle project, which has not yet been commercialized.
What assets are likely to be sold? The "Magnificent Seven" are the primary candidates. Multiple investors indicated that the most probable holdings to be reduced are the Magnificent Seven—Alphabet, Amazon.com, Apple, Meta Platforms, Inc., Microsoft, NVIDIA, and Tesla Motors. While these giants faced pressure earlier this year, they rebounded strongly in April, with the Bloomberg Magnificent Seven Total Return Index surging 14% for the month and up approximately 2% year-to-date.
Tony Wang, who manages the $12 billion T. Rowe Price科技基金, stated directly that his buy/sell decisions regarding the SpaceX IPO are being considered "in the context of the Mag 7," with the core consideration being "which offers the greatest risk-adjusted return." Wang's largest holdings include Apple, NVIDIA, and Broadcom, but he declined to reveal specific reallocation plans, only suggesting that other fund managers might reduce positions in these large-cap, highly liquid stocks.
Another structural factor is fund concentration limits. Technology stocks currently comprise about two-thirds of the holdings in large-cap growth funds. The addition of SpaceX would further increase this concentration. Some funds wishing to purchase SpaceX shares would be forced to correspondingly reduce existing technology holdings. Additionally, some managers are discussing selling holdings in sectors that directly compete with SpaceX, such as traditional aerospace and defense.
Tax considerations are also part of the equation. Technology stocks that have recently declined are ideal candidates for "tax-loss harvesting"—Microsoft has fallen approximately 25% since its peak last October.
The interplay between passive and active management adds complexity to this fundraising challenge. The broader trend of continuous inflows into passive index funds and outflows from actively managed funds complicates the situation. Index funds will not purchase SpaceX until it is included in a relevant index. Conversely, active managers, already facing redemptions, are selling stocks to meet those outflows—the pressure to sell would only intensify if they wish to participate in the SpaceX IPO.
A Goldman Sachs report last week noted that historically, U.S. mutual funds have tended to increase their cash ratios ahead of large IPOs, but this has not been observed this year. However, Goldman also cautioned that large IPOs typically do not have a significant impact on the performance of major large-cap stocks.
Holders of Tesla Motors face an additional dilemma. Ross Gerber of Gerber Kawasaki, which manages a $4 billion fund, believes the SpaceX IPO will incentivize investors to sell Tesla stock. "Many Tesla investors want to own SpaceX, and they will sell some Tesla to buy SpaceX," he said. Tesla's stock has declined 11% this year due to weaker-than-expected electric vehicle sales. Gerber, who already holds SpaceX shares privately, plans to sell a portion of his position as soon as possible after the IPO, arguing the company's valuation should be lower than its current $1.25 trillion private market valuation.
Strong demand from public market investors could also benefit existing SpaceX shareholders—they may gain an opportunity to sell shares before the typical six-month lock-up period expires, although the specific timing and scale of such sales remain unclear.
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