A new fund designed to give retail investors a way to buy into private companies like SpaceX has seen massive demand in its first few weeks of trading, leading to a significant premium for the fund and some confusion on a popular brokerage app. The Destiny Tech100, trading under the ticker symbol DXYZ on the New York Stock Exchange, has experienced substantial price fluctuations since its launch on March 26. Despite having a net asset value of $4.84 per share as of December 31, the fund has consistently traded well above that value. At one point, the fund traded as high as $105 per share, representing a premium of over 400%. This premium is unusual for closed-end funds, which typically trade at a discount to their net asset value.
The surge in demand for the Destiny Tech100 fund comes amidst a challenging period for large public tech stocks, suggesting that the significant premium may not be entirely justified by underlying valuations. Some of the companies held by the fund, such as OpenAI and SpaceX, already boast valuations in the tens of billions of dollars. Consequently, paying a substantial premium for these holdings could result in inflated valuations for retail investors. Despite the high premium, the demand for the fund highlights a growing interest among retail investors in gaining exposure to private companies through accessible investment vehicles.
The unprecedented premium on the Destiny Tech100 fund has led to some confusion on the Robinhood brokerage app, with users reporting inconsistencies in their ability to buy or sell shares of the fund. While the fund was initially available for trading on Robinhood, users suddenly found themselves unable to purchase additional shares without any prior communication or explanation. This situation mirrors previous instances during the meme stock frenzy when Robinhood restricted trading on certain securities due to risk management concerns.
To address the premium and create additional liquidity, the fund plans to issue up to $1 billion in new shares, which could help reduce the existing premium. This move aligns with the fund’s broader strategy to expand its portfolio and enhance shareholder value. Despite the current focus on the premium, Destiny XYZ, the parent company of the fund, has sold some of its shares to fund future initiatives aimed at improving the company’s operations.
In conclusion, the Destiny Tech100 fund’s significant premium reflects retail investors’ growing appetite for exposure to private companies like SpaceX and OpenAI. While the premium may not be sustainable in the long run, the fund’s popularity highlights the demand for innovative investment opportunities that provide access to private markets. By issuing additional shares and addressing liquidity concerns, the fund aims to enhance its value proposition and offer investors a compelling option for investing in private tech companies.
