Washington policymakers have been squabbling for years over how much access everyday people should have to the lucrative but dicey world of private market investing. Sohail Prasad thinks he may have cracked the code. Prasad is the CEO of Destiny, the firm behind one of Wall Street’s most talked about funds: the Destiny Tech 100, which is often known by its ticker, DXYZ. Its selling point? The fund almost exclusively holds shares in large private tech companies like SpaceX, OpenAI and Stripe that otherwise would be out of reach for most investors. “Twenty-five years ago, people had access to many of these [types of] companies,” Prasad told MM. “It’s about providing access to these companies that are changing the world as we know it, letting individual investors have ownership in these companies but doing so with the liquidity and protections of the public markets.” Private company investing in the U.S. is largely done behind closed doors by financial behemoths, sophisticated investors and the rich, who can usually handle the high stakes of wagering on fledgling ventures that often crash and burn — but sometimes strike gold. But companies for years have been opting to stay private for longer, a phenomenon partly driven by the amount of cash available in the private markets and the degree of scrutiny that comes with going public. In turn, some lawmakers, regulators and business groups caution that individual investors, whose investments are largely limited to the public markets, are being unfairly shut out from companies that could be the next great Silicon Valley giants. Now, DXYZ is beginning to reignite the debate over the tradeoffs of private market investing, with some in Washington warning of the dangers of plowing money into companies whose financials and operations are largely clouded from public view. “A publicly traded product composed of heavily hyped, opaque, illiquid assets is likely to attract a ton of attention from regulators and plaintiffs’ lawyers,” said Tyler Gellasch, CEO of Healthy Markets Association, an institutional investor advocacy group. “The securities laws are intended to ensure public market investors have detailed information about companies’ operations, financials, governance and risks when they’re making their investment decisions, and this type of product is facially designed to avoid those laws. You have to ask yourself why.” DXYZ holds shares in 23 private companies with plans to grow that to 100. (Elon Musk’s SpaceX represents its largest position at about 35 percent of the portfolio.) Prasad said DXYZ acquires the shares through a mix of different means such as primary fundraising rounds, private stock marketplaces and, in some cases, agreements with existing shareholders to acquire their shares when the company goes public. The fund is not the first or only vehicle that offers individual investors a chance to buy into private companies, but it has taken the market by storm since debuting last month. Its stock is up about 200 percent — and that’s after skyrocketing to more than $100 a share before crashing back down as the overall market declined. As of Monday’s close, DXYZ was trading at $24.69. “Unsurprisingly, retail investors want the same private market opportunities as institutional investors like state and local pension plans,” SEC Commissioner Mark Uyeda said in a statement. A Republican, Uyeda added that the SEC should particularly consider expanding private-market access to fiduciary-advised funds. DXYZ’s rise has the stock trading at a significant premium over the value of the fund’s underlying holdings, which was last disclosed to be about $5 per share at year-end. But Prasad attributes the stock’s gyrations to “a discovery market” where investors are trying to figure out how to value the fund. As for the companies underlying the fund, Prasad said DXYZ targets those that would already be publicly traded at another period in time. The fund picks its holdings based on a slate of criteria, he added, including whether they have been vetted and financed by U.S. institutional investors, whether they have a burdensome debt load and any cultural red flags. "Most of these companies are not two guys in a living room with an idea,” Prasad said. IT’S TUESDAY — Be sure to send any tips to MM host Zach Warmbrodt at zwarmbrodt@politico.com. And if you want to talk about public and private markets, I’m at dharty@politico.com.
| 
No comments:
Post a Comment