The Destiny Tech100 fund, which offers retail investors access to private companies such as SpaceX, has witnessed tremendous demand during its initial weeks, resulting in a large premium and confusion on the popular brokerage platform Robinhood. Traded on the New York Stock Exchange under the ticker DXYZ, this closed-end fund has experienced significant price swings despite the underlying valuation of its holdings remaining relatively static. As of December 31, the fund’s net asset value (NAV) stood at $4.84 per share, but it has traded well above that since its launch on March 26. On April 8, the fund reached a high of $105 per share, while on Monday, it closed at $24.69 per share, representing a premium of over 400%. This premium is particularly notable because closed-end funds typically trade at a discount to NAV. Jack Shannon, senior manager research analyst for Morningstar, expressed surprise at the premium, stating that it suggests investors are disregarding the NAV. Despite the surge in the fund’s price, major public tech stocks have faced challenges, indicating that private valuations are not experiencing a significant rise. Some of Destiny’s holdings, including OpenAI and SpaceX, are already valued at tens of billions of dollars. According to Shannon, paying a premium on these companies’ valuations can lead to astronomical valuations. One potential reason for the premium is the high demand from retail investors for opportunities to invest in private companies, which they may not otherwise qualify for or have the capital to access. Chelsea Childs, a partner at law firm Ropes & Gray, sees this demand as a testament to the fund’s concept, highlighting its success despite the potentially unsustainable premium. Sohail Prasad, CEO of Destiny XYZ, the fund’s parent company, aims for the fund to become the SPDR S&P 500 ETF Trust (SPY) for private tech companies. However, the fund’s 2.5% management fee makes it significantly more expensive than index ETFs. The popularity of the new fund has led to confusion on Robinhood, a retail brokerage platform. According to Prasad, the Destiny fund was initially available for trading on Robinhood, but complaints emerged last week that this had changed. Users encountered inconsistent explanations for why they could not purchase the fund, as per Prasad and screenshots shared by Destiny. Prasad expressed disappointment at the lack of communication from Robinhood regarding the changes. Robinhood declined to comment on the specifics of the Destiny fund but stated on its help center website that closed-end funds are not available for trade. This confusion resembles the height of the meme-stock era when Robinhood restricted trading on certain stocks popular with retail traders. However, there is no indication that the restrictions on Destiny are related to similar risk-management concerns. While ETFs and mutual funds allow creations and redemptions to address premiums or discounts, closed-end funds face challenges in this regard. Despite the presence of a board of directors and a fund sponsor who have a duty to act in the best interests of shareholders, there are no strict rules regarding the actions that need to be taken, explained Childs. The fund plans to issue additional shares to potentially reduce the premium by increasing liquidity. Destiny announced in an April 16 filing its intention to sell up to $1 billion in additional shares, which Prasad sees as part of a broader plan to expand the fund, which currently holds less than 100 private companies. Prasad emphasized that their focus is not on the premium but on developing the fund. Destiny XYZ, the fund’s parent company, and Prasad have also sold some of their shares in the fund. Prasad indicated that the proceeds from these sales will be used for the betterment of the company.
Surge in Popularity of Destiny Tech100 Fund Raises Concerns Over Premiums and Robinhood Confusion
