Investing in private companies like SpaceX has always been a dream for many retail investors. Now, a new fund called Destiny Tech100 is making that dream a reality. This closed-end fund, trading under the ticker symbol “DXYZ” on the New York Stock Exchange, allows everyday investors to buy into private tech companies alongside giants like SpaceX.
The excitement surrounding the Destiny Tech100 fund has been palpable, with massive demand driving the share price to unprecedented heights. In just a few weeks of trading, the fund has experienced significant price swings, trading well above its net asset value of $4.84 per share as of December 31. The premium on the fund has soared to over 400%, a substantial deviation from the norm for closed-end funds.
What sets Destiny Tech100 apart is its focus on offering retail investors access to private companies with astronomical valuations. Holdings in the fund, such as OpenAI and SpaceX, are already valued in the tens of billions of dollars. The premium on the fund reflects investors’ eagerness to tap into the potential growth of these companies, despite the hefty price tag.
One of the reasons behind the premium could be the high demand from retail investors who lack the qualifications or capital to invest directly in private companies. The fund’s CEO, Sohail Prasad, envisions Destiny Tech100 as the go-to investment vehicle for private tech companies, akin to the popular SPDR S & P 500 ETF Trust (SPY). However, with a management fee of 2.5%, the fund comes at a higher cost compared to traditional index ETFs.
The recent confusion on the Robinhood brokerage app regarding the trading of Destiny Tech100 serves as a reminder of the challenges associated with closed-end funds. While ETFs and mutual funds allow for creations and redemptions to adjust premium or discount levels, closed-end funds like Destiny Tech100 face limitations in managing liquidity.
To address the premium on the fund, Destiny is planning to issue additional shares worth up to $1 billion. This move aims to improve liquidity and potentially lower the premium for investors. Despite the current focus on the premium, Destiny’s main goal remains to expand its portfolio and offer investors a diversified exposure to private tech companies.
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