XOVR's SpaceX Meltdown Is a Warning for Every Private Asset ETF

In January, when the Baron First Principles ETF (RONB) was making headlines for its then-record-setting 27% allocation to private companies, I outlined three structural risks that come with stuffing illiquid assets inside an exchange-traded fund: valuation opacity, flow-driven dilution, and concentration risk from redemptions.

At the time, those risks were mostly theoretical. They aren't anymore.

The ERShares Private-Public Crossover ETF (XOVR), which has marketed itself as a way to "democratize" retail access to private companies, just lived through all three of those risks in spectacular fashion.

The fund saw $626 million in outflows on Wednesday alone, and its SpaceX stake has ballooned to roughly 45% of assets. That's triple the 15% cap the SEC places on illiquid holdings in open-end funds.

The saga offers a real-time lesson in why private companies and ETFs remain an uneasy combination.

A Quick Recap

XOVR first announced its SpaceX position in December 2024 and spent months aggressively promoting the holding. The strategy worked. Assets nearly quintupled, from roughly $100 million to $500 million over the next year, as investors rushed in hoping to get a piece of one of the hottest private companies in the world.

Inflows then accelerated even further in December 2025, after reports indicated SpaceX could IPO in 2026 and was set for a major revaluation. 

That revaluation did materialize, with SpaceX's estimated worth doubling from roughly $400 billion to $800 billion later that month. In February, SpaceX merged with xAI, and the combined entity was valued at $1.25 trillion.

XOVR's assets peaked at $1.8 billion.

The FT's Robin Wigglesworth spoke with Joel Shulman, the CEO and chief investment officer at ERShares, who thinks much of that December surge was opportunistic.

Arbitrageurs had swooped in to capture a quick gain from the expected revaluation of SpaceX, and then they left, which may explain the massive outflows this week, he said.

But the story goes well beyond the outflows. This saga has brought to light the structural risks that come with holding private companies inside ETFs.

When I wrote about RONB in January, I identified three risks investors should understand before buying ETFs with large private holdings. XOVR has now pressure-tested all three.

#1: Dilution 

The first is dilution from inflows. When an ETF takes in large amounts of new money, the manager may not be able to scale the private position fast enough. If that happens, new capital ends up in public stocks, diluting the exposure investors came for.

XOVR dealt with this repeatedly. Each time inflows surged, the SpaceX weighting would drop, forcing ERShares to scramble to buy more shares through its SPV structure to restore the target allocation. It was messy, but the fund managed it.

At the end of the third quarter, XOVR held roughly $486 million in assets, with SpaceX accounting for about 7% of the portfolio. By the end of the fourth quarter of 2025, assets had grown to nearly $1.5 billion, while SpaceX exposure increased to 10.9%.

Call this one a pass, though the opacity issue (more on that below) makes it hard to know at what cost those additional shares were acquired.

#2: Valuation Opacity

This is where things started to go wrong.

Morningstar analyst Jeffrey Ptak documented this problem in detail. After ERShares marked its SpaceX position up from $135 to $185 per share in December 2024, the valuation didn't budge for over a year, even as SpaceX's estimated value soared from around $250 billion to over $1 trillion.

Ptak found that the SpaceX position contributed almost nothing to fund performance over that stretch, with public stocks accounting for nearly all of XOVR's returns.

When ERShares finally revalued SpaceX to $526.59 per share in February 2026, it should have been a windfall. Instead, the markup barely registered in the fund's NAV.

Ptak speculated that the SPV arrangement may have prevented SpaceX's gains from flowing through to shareholders, possibly due to onerous fees, dilutive ownership terms, or other factors baked into the vehicle. ERShares hasn't disclosed the terms of the SPV, so investors have no way to know for sure.

Whatever the explanation, SpaceX soared in value and XOVR shareholders saw almost none of the benefit. Since initiating the SpaceX position, the fund has lost 6.8% while the S&P 500 gained 15%.

That is a damning result for a fund whose entire pitch was giving you access to SpaceX. 

#3: Concentration From Outflows

This is the risk playing out right now, and it's the mirror image of dilution.

When investors redeem shares of an ETF, the manager has to offload holdings to meet those redemptions. But you can't easily offload chunks of a private company on a moment's notice. So the liquid, public holdings go first, and the illiquid position grows as a share of what's left.

That's exactly what happened this week. After $627 million walked out the door, XOVR's SpaceX allocation jumped from around 21% to 45% of net assets.

The fund went from having a large-but-manageable private position to one that dominates the portfolio and sits well outside regulatory limits.

Any further outflows will only make it worse. Every dollar that leaves means fewer public stocks in the portfolio, which pushes SpaceX's relative weight even higher.

"That, in turn, could court the risk of wider bid-ask spreads and the ETF's price potentially trading at a discount to NAV. Also, investors could be exposed to losses if a portion of the SPV had to be disposed of on disadvantageous terms, a distinct possibility given SPV units are more difficult to transact in than private equity interests themselves," Morningstar's Ptak said. 

The Exposure Problem

Let's step back from the structural issues for a moment and consider the basic investor experience.

If you bought XOVR for SpaceX exposure, what exactly did you get? A fund where your SpaceX allocation might be 10% one week, 5% the next after a wave of inflows, 21% a month later, and then 45% after a round of redemptions. At no point did you have any control over or reliable expectation of what your actual private market exposure would be.

That's a fundamental problem with putting illiquid securities in ETFs. Open-end funds can't control their flows. When the underlying asset is liquid, that's fine. The manager buys and sells as needed and the portfolio stays roughly on target.

But when a big chunk of the portfolio can't be easily bought or sold, things break down. Add the opacity issue on top of that, and you have a product where investors don't know what percentage of SpaceX they own, don't know what price it's being carried at, and have limited ability to verify whether they're actually participating in the company's gains. 

What This Means Going Forward

It's tempting to chalk this up to mismanagement by ERShares. And there's no question the firm made things worse with its aggressive marketing and lack of transparency around valuations and SPV terms.

But the dilution and concentration dynamics aren't unique to XOVR. They're structural features of holding illiquid assets in an open-end vehicle. A better-managed fund can mitigate these risks, but it can't eliminate them.

That's worth keeping in mind as more ETFs push into private markets. The Baron First Principles ETF (RONB) currently sits at 15% private exposure in SpaceX. It hasn't been stress-tested yet and it has the benefit of holding the shares directly rather than through an SPV. But the same dynamics that caught XOVR could play out in any fund that takes large positions in companies that can't be easily bought or sold.

Investors considering these products should understand that the private exposure they're buying is inherently unstable and subject to forces that neither they nor the fund manager can fully control.