Elon Musk’s technology giant SpaceX has debuted on US investment markets with one of the largest initial public offerings in history. But what does it mean for UK pension investors?
The company has floated a proportion of its shares at $135 (£100) each, valuing the company at approximately $1.78trn – despite the fact it is still loss-making. It will initially be added to the Nasdaq 100 and Russell 1000 and 3000 indexes, with providers accelerating the process for additions to accommodate SpaceX.
SpaceX and the banks tasked with running the IPO believe the company’s artificial intelligence (AI) business will grow dramatically in the years to come, justifying the high valuation.
With other AI-driven businesses expected to list shortly, including OpenAI and Anthropic, pension schemes with global and US equity exposures will soon have these much-hyped companies in their portfolios.
The tech-driven Magnificent 10
Callum Stewart, DC investment partner at XPS Group, said the trio of technology firms could give rise to a “Magnificent 10” of tech companies at the top of global equity markets.
Given the size of these companies relative to listed markets in general, this could mean many defined contribution (DC) pension scheme members “will gain meaningful exposure to SpaceX, Anthropic or OpenAI through their default investment strategies, which now dominate workplace pensions”, Stewart explained.
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This is likely to happen quickly, given that index providers have accelerated the process for adding companies to their benchmarks (see below) – meaning any pension schemes with passive equity strategies will buy into SpaceX and other tech companies in the next few weeks.
Louise Davey, head of policy and external affairs at Independent Governance Group, said: “UK schemes that utilise these index funds are passively placing an increasingly large bet on AI and tech hyperscalers, a trend only set to accelerate as the new IPOs are given fast-track entry.”
Davey also highlighted that AI companies were entering the bond markets, too, with Google’s parent company Alphabet raising billions in debt this year.
“As local schemes consolidate, policymakers drive funds towards equities, and the global markets gear up for an unprecedented year of outsized new entrants, it has never been more important to have strong investment strategies backed by professional governance,” Davey said.
The stewardship elephant in the room
SpaceX is listing using a dual class share structure, a controversial approach that has become more common in recent years, especially for some large technology companies such as Meta and Alphabet.
The structure allows controlling stockholders to maintain this control by issuing non-voting shares or shares with fewer voting rights.
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Major US investors, including New York and California state retirement funds, recently wrote directly to Elon Musk urging him to reconsider his approach to shareholder voting rights.
The letter stated: “Precisely because SpaceX is poised to occupy a position of systemic importance in the public markets, and to become, through index inclusion, an unavoidable holding in our portfolios, its governance must at least adhere to the baseline protections upon which long-term institutional capital depends, rather than seeking to diminish them.”
“It’s vital we all argue for the good governance practices that are fundamental to sustainable growth for companies, investors and everyday savers alike.”
Caroline Escott, Railpen
Caroline Escott, head of investment stewardship at Railpen and chair of the Investor Coalition for Equal Votes, recently argued against the dual class share structure in an article in The Times.
Posting on LinkedIn, she added: “With the next wave of AI firm IPOs nearly upon us, governance choices made now – and the extent to which they are accepted by investors – will shape our financial markets for decades to come. It’s vital we all argue for the good governance practices that are fundamental to sustainable growth for companies, investors and everyday savers alike.”
XPS’s Callum Stewart said the dual class share structure meant “investors could end up owning economic exposure without the normal avenues of shareholder influence”.
“Good stewardship assumes engagement, voting and escalation can influence outcomes,” he said. “That assumption becomes harder to sustain where control is tightly held from the outset.
“This raises a very important question for DC schemes: for members invested through static strategic allocations, passive implementation and default strategies, who is ultimately making the decision to allocate to these companies?”
US institutions hit out at index providers
Separately, a group of major US pension funds – including public institutions in New York, Illinois and Maryland – have written to FTSE Russell criticising its decision to fast-track SpaceX’s listing.
It highlighted that rival index provider Standard & Poor’s (S&P) had opted not to accelerate its process or waive its limitations for the tech company’s IPO. S&P requires companies to have at least 12 months of trading history, as well as meet a minimum net income level and other requirements.
In the letter, the pension funds urged FTSE Russell to “reconsider its methodology changes and not to place the interests of listing companies and their underwriters ahead of the interests of the passive fund assets that will bear the cost of any resulting mispricing”.
Nasdaq has fast-tracked SpaceX shares onto its indices, meaning it will join its main benchmark after 15 days’ trading. FTSE Russell, meanwhile, will add it to benchmarks after just five days.
S&P has maintained its 12-month rule, while MSCI’s fast-track rules allow companies to be included in some of its indices after 10 days.
“Trustees, employers and providers may increasingly need to revisit whether their chosen equity approaches still deliver the outcomes they expect for members.”
Callum Stewart, XPS
Selecting a benchmark becomes more important
XPS’s Stewart emphasised that the main issue was “less about one stock and more about whether existing DC governance frameworks are fully equipped for this next phase of public markets”.
“Trustees, employers and providers may increasingly need to revisit whether their chosen equity approaches, benchmarks and implementation structures still deliver the outcomes they expect for members,” he said.
“In this new environment, benchmark index selection is not just an incidental implementation decision. It becomes a decision that could meaningfully influence member outcomes.”
Investment commentators have their say
