SpaceX, OpenAI are on the way, and the index fund you bought might have to be forced to "high access."

Source:Ben Felix Podcast

Photo by Felix, News

Editor: In recent days, SpaceX has secretly submitted IPO registration documents to SEC in the United States, and its target is listed in June. The company plans to raise $50-75 billion, with a target estimate of about $175 trillion, and hopefully the largest IPO in history。

However, in a boom in the market, some have pointed out that this type of super-IPO is a “disaster” for investors in the diaspora, especially index funds. The PWL Capital Chief Investment Officer, Ben Felix, in a recent podcast, stated that SpaceX and OpenAI super-IPOs were a carefully designed “fake” and shared what the forthcoming super-IPOs meant to the diaspora and its portfolio。

The podcasts were collated by PaNews and are detailed below。

If private companies like SpaceX, OpenAI and Anthropic are listed, they will be among the largest in the world. In the case of index fund investors, this means that whether you like these companies or not, your funds will be invested in the stocks that they are forced to buy。

THE PURPOSE OF INDEX FUNDS WAS TO OPTIMIZE THE PERFORMANCE OF OPEN STOCK MARKETS. IN ORDER TO BE AS CLOSE TO THE MARKET AS POSSIBLE, MANY INDEX CODES REQUIRE THAT THEY BE INCLUDED AS SOON AS THE COMPANY IS LISTED. THIS IS TRUE FROM THE PERSPECTIVE OF MACRO-REPRESENTATIVENESS, BUT FROM THE PERSPECTIVE OF RETURN ON INVESTMENT, HISTORICAL DATA INDICATE THAT THE BLIND PURCHASE OF IPO SHARES TENDS TO YIELD POOR RETURNS。

Today, index funds control trillions of dollars, and when a newly traded stock is included in the main index, it means that a huge amount of money will flow to it. As index funds are forced to buy in, this provides sufficient liquidity for vendors and boosts equity prices. This is of great benefit to the shareholders of newly listed companies (e.g. insiders and early investors), but it is not the case for index fund investors who have had to become the “taggerman”。

Companies tend to be marketed when they believe they can sell at high prices. This means that when ordinary investors are finally able to buy the stock on the secondary market, it is when insiders believe that the stock is overvalued or highly priced. Investors usually do not want to buy overvalued shares, but index funds do not have such discretion. Regardless of the equity price, they must buy any stocks included in the index。

THE INCLUSION RULES FOR IPOS VARY FROM INDEX TO INDEX。For example, the current Standard 500 index, which requires stocks to be included after 12 months of trading in an open exchange, allows those that meet certain conditions to be included within a short period of five days of listing, known as “fast-access”。

According to Bloomberg, the Ppp is considering amending the rules of the Standard 500 Index to accelerate the inclusion of super-IPOs such as SpaceX; NASDAQ is also considering a similar adjustment of the NASDAQ 100 Index。

A PAPER IN 2025 EXAMINED THE IMPACT OF “FAST-ACCESS” CRSP ON STOCK RETURNS IN THE UNITED STATES MARKET-WIDE INDEX (TRACKED BY LARGE ETFS SUCH AS VTI AND INCLUDED IN IT AS SOON AS FIVE DAYS). THE AUTHOR FOUND THAT:AS INDEX INVESTORS ARE EXPECTED TO MAKE PURCHASES COMPULSORY, IPOS USING “FAST-ACCESS” ROUTES TEND TO PERFORM MORE THAN 5 PERCENTAGE POINTS MORE AFTER LISTING THAN NON-FAST-TRACK IPOS. THIS EXCESS, HOWEVER, PEAKED AT THE INTEGRATION DATE AND FELL SHARPLY OVER THE NEXT TWO WEEKS。IN ESSENCE, INDEX FUNDS ARE BEING “SOLD” BY INTERMEDIARIES, SUCH AS HEDGE FUNDS, WHO KNOW THAT ONCE EQUITIES MEET THE CRITERIA FOR INDEX INCLUSION, INDEX FUNDS BUY THEM AND THEN HOLD THEM WHEN THE STOCK PRICES FALL CLOSE TO THEIR IPO PRICES. THE AUTHOR DESCRIBES THIS AS A HIGH “HIDDEN TAX” PAID BY INDEX FUND INVESTORS, AND THESE INTERMEDIARIES ARE LIKE COWS SELLING TICKETS TO CONCERTS。

ANOTHER IMPORTANT CONCEPT RELATED TO THE SUPER IPO IS THE "FREE CIRCULATION UNIT."THIS IS THE PROPORTION OF SHARES THAT COMPANIES CAN PURCHASE ON THE OPEN MARKET. MOST MAJOR INDICES HAVE MINIMUM LIQUIDITY REQUIREMENTS AND WEIGHTING OF SHARES IS DETERMINED BY FREE CIRCULATION. SOME COMPANIES ARE LISTED ONLY TO RELEASE A VERY SMALL PORTION OF THEIR TOTAL MARKET VALUE, WHICH IS KNOWN AS “LOW CIRCULATION IPO”。

According to the Financial Times, there are less than 5 per cent of mobile shares listed in SpaceX, far below average. Even if its valuation reached US$ 1.75 trillion, with only 5 per cent of the circulation stock, most indices would be given weights at US$ 88 billion, and even many would directly exclude them. NASDAQ originally owned 10% of the minimum circulation unit requirements, but they approved a rule change following recent public consultations, not only accelerating IPO access, but also removing the lower threshold for low circulation units。

A pessimism is that NASDAQ changed the NASDAQ 100 index rule to attract SpaceX to be listed on its exchange. If SpaceX were included in the NASDAQ index, it would force the index fund to buy in. This is good news for SpaceX and its early investors and NASDAQ, but the cost is most likely borne by NASDAQ 100 investors。

Despite the differences in indexing, there is no doubt that these super-IPOs will change the pattern of open markets. According to a global blog post, SpaceX, OpenAI and Anthropic alone have 2.9% of the global index, almost equal to the weight of the entire Canadian market. In a February 2026 blog, MSCI index providers measured the impact of the pre-marketing of the top 10 private companies (the SpaceX valuation was projected at $80 billion at that time, but the overall view remained valid): in 5 per cent of the circulation stock, only 4 companies could be included; in 10 per cent of the circulation stock, 7 could be included. MSCI found that even on the basis of 25 per cent of the flow unit, the flow of funds that the index fund had to adjust was huge: Newly listed companies would attract billions of dollars in inflows, while the largest existing listed companies would suffer billions of dollars in outflows. These forced purchases of financial flows ultimately affect the interests of index fund investors。

AT THE HEART OF UNDERSTANDING THIS PHENOMENON IS THE FACT THAT INVESTING IN IPO IS ONE OF THE WORST INVESTMENT STRATEGIES AVAILABLE. ALTHOUGH IPOS USUALLY SURGED ON THE FIRST DAY OF THE MARKET, MOST INVESTORS SIMPLY DID NOT HAVE ACCESS TO THE ISSUE PRICE AND HAD TO TAKE OVER AFTER THE SURGE IN THE OPEN MARKET, WITH DRAMATIC FOLLOW-UP。

THIS IPO UNDERPERFORMANCE EVEN HAS AN EXCLUSIVE TERM: “THE MYSTERY OF THE NEW STOCK ISSUE”, FIRST PRESENTED IN A 1995 PAPER. THE PAPER FOUND THAT THE AVERAGE ANNUAL IPO RETURN BETWEEN 1970 AND 1990 WAS ONLY 5 PER CENT, COMPARED TO 12 PER CENT FOR LISTED ENTERPRISES OF SIMILAR SIZE DURING THE SAME PERIOD. TO GET THE SAME RETURN IN FIVE YEARS, INVESTORS NEED TO INVEST 44% MORE IN IPO。

In a study conducted in 2019 by the Dimensional Fund Advisors (DFA, Deminthon Foundation) which analysed the performance of more than 600 million IPOs in the first year of the secondary market between 1991 and 2018, the IPO portfolio was found to be about 2 per cent of the large disk and small stock index per year. The only exception was during the Internet bubble in 1992-2000, when the small technology unit IPO surged, but the subsequent collapse was well known. The study notes that IPO equities exhibit characteristics similar to “small, high growth expectations, low profitability, radical expansion” stocks, often referred to as small-scale junk-growing shares, which are highly volatile and long behind the big deal。

This is also confirmed in ETF products for IPO. Renaissance IPO ETF, dedicated to large new shares in the United States, has lagged behind the national stock market ETF (VTI) by more than 6 percentage points since its inception in October 2013. The IPO returns database prepared by IPO expert Jay Ritter shows that between 1980 and 2023, IPO shares were purchased and held in secondary markets for three years, with an average of 19 percentage points running。

IPOs in low-current shares perform worse, as the availability of traded stocks is limited and concentrated demand increases price volatility significantly. This is how OpenAI and SpaceX are widely expected to be listed。

According to the data shared by Ritter, since 1980, only 11 are in low circulation (i.e. less than 5 per cent of the IPO), and after inflation adjustments by these companies, sales over the past 12 months have been at $100 million or more. Of these, only 10 IPOs ran the market within three years, falling by about 50 per cent on average and closing more than 60 per cent on the first day. It showsSupply constraints do drive early price hikes, but are then often followed by significant market lags。

Moreover, these IPOs tend to have very high marketing rates (P/S) when they are listed. If SpaceX were to be marketed at 1.75 trillion United States dollars, its marketing rate would be over 100 times. By contrast, Palantir currently has the highest market sales rate in the 500 index, 73 times the average of 3.1 times。

Overall, high valuations are usually associated with lower expected future returns. This issue is more complex for index fund investors. When large private companies are listed with high valuations, they change the pattern of the wider market. In response, the index must be reoriented to maintain a broader market response。

The market value weighted index must be readjusted to reflect changes in market composition, which means that index funds are implicitly involved in “market choice”. The problem is that this is usually a very bad market choice. Companies often issue shares when the valuation is extremely high and repurchase them when the valuation is low. As a result, the index fund, in its efforts to track the index, was eventually forced to buy and sell。

A paper in 2025 estimated thatThe passivity resulting from the rebalancing of the index will result in a lag in the performance of the portfolio from 47 to 70 basis points per year (0.47 per cent - 0.70 per cent)。

SINCE COMPANIES ARE STAYING LONGER AND LONGER BEFORE LISTING, SHOULD ORDINARY INVESTORS TRY TO FIND OPPORTUNITIES TO INVEST IN PRIVATE COMPANIES BEFORE IPO? THERE ARE SEVERAL SERIOUS PROBLEMS:

Survivor bias:There are thousands of failed or growthless private companies for every SpaceX or OpenAI heard. Survivors of the private market are far more brutal than open markets。

Very high hidden costs: The costs and costs associated with the investment of private companies tend to devour the revenues of holding them. The Wall Street Journal reported that a special purpose vehicle (SPV) aimed at purchasing spaceX shares charged up to 4 per cent of front-end fees and took 25 per cent of future profits as a share. There is also a risk of unclear ownership resulting from structural complexity and pure fraud。

Liquidity depletion and abnormal losses: Unless you are an internal employee, a financial intermediary who runs a private equity channel will never give you the pie that fell out of the sky. For example, ERSShares Private-Public Crossover ETF (XOVR) purchased SpaceX through SPV in December 2024. Despite the subsequent significant increase in SpaceX valuations, the ETF as a liquid ETF holds large amounts of non-liquid assets and faces a number of practical problems due to the lack of liquidity of SPV. As a result, the Fund not only lost in absolute terms, but also lost heavily。

As Jeff Ptak, the director of Morning Star, pointed out, “The more you want something in investment, the more you may have to question your original desire to have it”. Investors are too eager to share a piece, and in this case they burn。

FOR INDEX FUND INVESTORS, SUPER-IPOS WILL INEVITABLY INFLUENCE MARKET INDICES AND TRACK THEIR FUNDS, ESPECIALLY WHEN THESE COMPANIES ARE “FAST-TRACKED”. DEPENDING ON ITS OPERATING MECHANISMS, INDEX FUNDS WILL BUY THESE IPO SHARES BLINDLY AT ANY PRICE, AND LARGE PURCHASES WILL EVEN FURTHER INCREASE THE COST OF BUYING THEM。

IF YOU'RE AN INDEX FUND INVESTOR, THAT'S A HIDDEN COST YOU'VE BEEN PAYING, OR IT'S PART OF AN INDEXED INVESTMENT LIFE THAT HAS TO BE ACCEPTED. YOU CAN CHOOSE TO CONTINUE TO ENDURE AND ACCEPT IT, OR YOU CAN LOOK FOR ALTERNATIVES TO BUY IPO SHARES WITHOUT BLINDING. FINALLY, IT IS ALMOST IMPOSSIBLE FOR ORDINARY PEOPLE TO GET THESE SCARCE PRIVATE COMPANY SHARES BEFORE THE IPO; WHEN EVERYONE BUYS THEM, THEIR HIGH PRICES OR THE THRESHOLD OF ACCESS WILL DEVOUR MOST OF WHAT YOU EXPECT。