By Brett Arends
The hype surrounding SpaceX and the scale of its ambitions will surely drive short-term demand for shares
Ron Baron is a huge fan of Elon Musk and was an early – and big – investor in SpaceX.
Elon Musk’s rockets-to-AI conglomerate Space Exploration, popularly known as SpaceX, is finally coming to the stock market. The futuristic behemoth filed key paperwork just before the Memorial Day weekend. More details will be coming. The IPO may value the company at an astronomical (no pun intended) $2 trillion. It could make Elon Musk, on paper, the first trillionaire in history.
“It’s the talk of the town,” says portfolio manager and financial adviser Larry Glazer, managing partner of Mayflower Advisors in Boston. “No one’s talking about anything else.”
Those of us in the cheap seats don’t have to wait until the IPO to buy shares. You could go out today and invest some of your IRA in Baron Partners BPTRX, a well-known and well-established mutual fund with a terrific long-term track record. Fund founder and co-manager (with his son) Ron Baron is a huge fan of Elon Musk and was an early and big investor in SpaceX.
Baron Partners reveals on its website that 29.6% of the fund’s holdings are in the privately held company. So out of every $1 you invest in Baron Partners, about 30 cents goes into SpaceX – and another 19 cents into Musk’s other company, Tesla (TSLA).
The amount of hype surrounding SpaceX – and the sheer scale of the company’s ambitions – is surely going to drive short-term demand for shares in the IPO. Although nothing has yet been confirmed, the rumors are that SpaceX is selling off maybe $75 billion out of a $2 trillion valuation. Crucially, the total valuation will force index funds and those benchmarked against the S&P 500 SPX to buy a lot of stock whether they want to or not. It’s perfectly plausible that the stock will have at the very least a short-term pop.
And it’s worth pointing out that Ron Baron is one of the few Wall Street managers who has actually earned his money over the years. Since it was launched over 30 years ago, Baron Partners has outperformed not only the S&P 500 but also the large-company “growth” indexes and the Nasdaq COMP by a wide margin.
News that the fund is a way to “play” the SpaceX IPO is already out there. So far this year the fund has seen a massive $2.8 billion in inflows from investors, equal to nearly 30% of total current assets, according to Morningstar data. That reversed years of outflows. Half of that was in April alone, as SpaceX mania surged.
Before you jump in, there are a few things you should know.
While Baron Partners claims to have just under 30% of its money invested in SpaceX, Musk’s company is still privately owned, and there is no clear way to validate that number. Baron’s mutual-fund division, and its Wall Street public relations firm Prosek Partners, refuses to explain, or even discuss, how this number is reached.
Yet Baron Partners is a publicly available mutual fund regulated under the Investment Act of 1940, and ordinary shareholders should be told how nearly a third of their money is being invested. There is no good reason to withhold the data.
And a look through Baron Partners’ latest filings reveals some signs that, if not outright worrying, at least should give you pause. As of the March 31 quarter’s end, two-thirds of the reported value of its stake in SpaceX was not accounted for by the common stock – the regular kind you and I buy – but something called “preferred stock.” These are complex vehicles whose valuation is not clear and which are often closer to bonds instead of stocks. If they are convertible, on what terms? Will they get the same upside from the IPO? Who knows?
The most recent regulatory filing from Baron Partners lists five tranches of investment in SpaceX with a reported total valuation, as of March 31, of $3.89 billion. Some $2.56 billion of that was in preferred stock.
Adding to the complexity, the fund reports leverage – borrowing against its assets – of 13%, which can boost returns if things go well but has the reverse effect if things go badly. Meanwhile Ron Baron’s other funds, including privately held vehicles, hold another $11 billion in SpaceX stock, on top of the $3 billion to $4 billion held by Baron Partners. How do the conflicting needs of different investors get handled? Do the investors in the cheap seats buying Baron Partners get treated the same as the well-heeled investors in the private Baron X, Baron X II and Baron U.S.A. Partners funds?
The SpaceX prospectus leaves the picture even more confused. It lists 16 different SpaceX preferred stocks, along with six different preferred stocks from “xAI,” which is the former Twitter and Grok and which recently merged with SpaceX. Which ones does Baron own? And, most importantly, what are the exact terms of their conversion to common stock?
Baron Capital won’t say.
This is completely unacceptable – especially as Ron Baron feels no compunction about going on TV and talking up SpaceX in the most pie-in-the-sky manner possible. “I think that the company over the next 10 or 15 years is going to be worth $10 trillion, $20 trillion, $30 trillion,” he said of SpaceX on CNBC recently. He added: “And I could be very low. Could be very low on where it’s going to be.”
This is exactly the kind of hype that drives bubbles and persuades ordinary members of the public to take on more risk than they should. But Baron can’t tell you exactly how his published valuation is reached? Ludicrous.
This matters because the price you pay for a security is an essential component of your likely returns. And if someone is buying into the Baron Partners fund in the hope of getting SpaceX at a pre-IPO price, it would be helpful to know what price they are paying.
Mayflower’s Glazer worries that many investors will get caught out by hidden complexities, and may end up losing money where they thought they’d make it. “This stuff is a lot more complicated than you think it is, and there’s a lot going on behind the scenes,” he says.
Meanwhile, even as Baron Partners says 30% of your money will be invested in SpaceX (based on valuation measures that you are not allowed to know), that means 70% will go into other investments. When you invest money, the Baron fund managers can’t go into the market and buy more SpaceX with your money, because it’s not yet traded. So they have to buy other stocks. That means the percentage of the fund invested in SpaceX will decline as more money pours in. And the fund’s other major holdings include brokerage Charles Schwab (SCHW), which is down about 10% so far this year; financial-data company FactSet (FDS), which is down nearly 20%; and technology advisory firm Gartner (IT), which is down nearly 40%.
Exposure to all these other stocks is why investors in Baron Partners have actually lost money so far this year. The fund is down 2% since Jan. 1, according to FactSet.
And as a new fund investor you will be allocated a proportionate share of the existing SpaceX holdings, which merely dilutes existing fund investors’ stakes in SpaceX. The people investing after you will do the same to you.
While Ron Baron has a terrific, index-beating long-term investment record, he is now 83. He has appointed his son Michael as co-manager. No disrespect to the younger Baron, but there is no particular reason to think he will beat the indexes over time. Almost no fund managers do. Meanwhile the fund charges an eyewatering 2% in fees.
Financial adviser John Coumarianos of Mindful Advisory in Short Hills, N.J., warns that Baron Partners’ huge exposure to SpaceX and Tesla make it a riskier investment than many may realize.
“From a portfolio-construction standpoint, many investment advisers – myself included – balk at this level of concentration in a fund,” he says. “I view a fund like Baron Partners as a highly speculative satellite holding. If a client wanted exposure to Baron Partners, I would limit it to a maximum of 5% of the equity allocation, to insulate the client from idiosyncratic risk.”
As ever, you pays your money and you makes your bet.
-Brett Arends
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05-27-26 1120ET
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