How Elon Musk always wins

One scoop to start: Saudi Arabia’s sovereign wealth fund has injected only about a third of the $600mn that LIV Golf needs to fund the remainder of its season, exacerbating a crisis engulfing the competition as it races to find new backers.

In today’s newsletter:

SpaceX could cement a trillionaire

Today, Wall Street will be humming like never before as SpaceX makes the biggest public market debut in history.

Elon Musk’s lossmaking rockets-to-AI group will begin trading on the Nasdaq at an astonishing — and, some say, fanciful — $1.78tn valuation.

The initial public offering raised $75bn and drew orders for more than three times the amount on offer, though the total fundraising could rise to $86bn if underwriters exercise a greenshoe option to sell additional shares.

Major indices have rewritten the rules of the market ahead of the listing, enabling an almost immediate flood of passive investment into the company. Wall Street banks kissed Musk’s ring to land advisory roles and, with them, a slice of the riches the world’s wealthiest man will generate.

It’s an unusual listing in almost every way. The Texas-based group’s “free float” is small, making up only about 4 per cent of the company, at a price of $135 per share. Musk has sought to allocate a record portion of those shares to retail investors, who eagerly oversubscribed.

Perhaps they’re Musk fans. Or they believe SpaceX when it claims it will soon be putting data centres into orbit and be at the forefront of developing AI.

The company’s IPO prospectus resembled a sci-fi novel with images of rocket launches and a stated mission to “extend the light of consciousness to the stars”. But its biggest moonshot has nothing to do with space.

Instead, Musk has identified AI as by far the largest market for SpaceX to address, with a potential value of $26.5tn, dwarfing the $2tn or so from the group’s Starlink internet service and space operations.

The rocket maker’s claims to a $1.78tn valuation hinge on its AI projections, and Wall Street banks have lent their credibility to make the sales pitch.

Goldman Sachs, the lead investment bank advising on the listing, told investors during the IPO roadshow that SpaceX’s revenues at its AI unit will surge about 100 times by 2030.

Such optimistic claims have, not surprisingly, generated enormous scepticism. For the AI growth forecasts to be justified, SpaceX’s Grok family of models would have to catch up and surpass more advanced labs including Anthropic, Google and OpenAI.

Those who don’t think it’s possible believe SpaceX’s debut will only transfer wealth upwards from retail investors to venture capital firms.

Only time will tell where the share price goes. But Musk will probably become the world’s first trillionaire.

The banks that fight to finance Musk’s empire

Musk has proven that he can work Wall Street better than anyone else.

This was evident by 2022 when banks tripped over one another to lend him $13bn to buy Twitter. The loans were then “hung” as Musk attempted to back out of the deal.

When Musk announced his ambitions to take SpaceX public, banks again clamoured to be involved. He wielded their desperation for a spot in his orbit to win a favourable fee agreement, negotiating a payment to SpaceX’s advisers of less than 0.75 per cent of the fundraising.

Even though he’s hired 23 banks to run the process, it was Musk himself who set the IPO price of $135 a share.

“Elon just came in and said what the price was . . . there was no price discovery,” an executive at a large US hedge fund told the FT.

One investor said hedge funds had been told to expect allocations of only about $1bn even if they had put in requests for far more, with SpaceX instead giving larger proportions to family offices, which are perceived as institutions that will hold stock for longer.

Major indices also decided SpaceX was too big not to accommodate. 

The Nasdaq 100 was the first major index to change its rules as it attempted to land the listing over NYSE. It now allows the largest companies to join just 15 days after their IPO.

FT Alphaville calculated that, largely thanks to new fast-track inclusion rules, fund managers wishing to avoid taking a view on SpaceX will still have to buy more than $14bn of the company’s shares between the IPO and July 3 just to neutralise their index position.

Musk will maintain unprecedented control for a public company.

He will be chief executive and chair and functionally unfireable. It will also be exceptionally difficult for ordinary SpaceX shareholders to sue, in part because the company is incorporated in company-friendly Texas.

New York and California public pension funds called it “the most management-favourable governance structure ever brought to the US public market at this scale”.

He has also consistently tapped banks against his holding of Tesla and SpaceX, according to filings.

Silicon Valley’s new stimulus: Elon Musk Inc

Though Musk is the biggest winner today, his listing will inject tens of billions of dollars into Wall Street and Silicon Valley.

Early VC backers and hedge fund investors will watch their stakes turn into billions of liquid dollars when the lock-up expires. Thousands of SpaceX employees will become sudden millionaires. And bankers will collect as much as half a billion dollars in fees.

This all means big business for the wealth advisers who will manage the newfound riches. Real estate agents are expecting a boom in sales of luxury homes around Silicon Valley and Texas. Accountants are surely already courting the soon-to-be multimillionaires, with the hope of advising them on how to lower their tax bills.

This is just the beginning. Anthropic and OpenAI are preparing to list at valuations as high as $1tn, with the launch of SpaceX whetting IPO appetites.

The Supreme Court rules against Boaz Weinstein

Feisty hedge fund manager Boaz Weinstein’s crusade to shake up the closed-end investment fund world ran headlong into a brick wall at the US Supreme Court on Thursday.

Weinstein’s Saba Capital has been the scourge of the closed-end fund world in recent years. Saba buys stakes in funds where the share price lags well below the listed value of the underlying assets, and demands that the fund managers do something to close the gap.

As part of the campaign, Weinstein has sought to install his own directors and then fire the existing fund management company. But BlackRock and several other managers refused to let Saba vote its own shares in the resulting board elections, saying their funds’ bylaws prevented it. Weinstein sued and won an initial court victory.

But now, the Supreme Court has sided with the investment funds that sought to resist Saba and lawsuits like that brought by Weinstein.

In a 6-3 decision, the justices held that the 1940 Investment Company Act does not implicitly empower shareholders to sue to rescind contracts made by a fund. The court said primary enforcement power rests with the Securities and Exchange Commission rather than private lawsuits.

“Nothing in the text or structure of the ICA indicates that Congress authorised private parties to enforce virtually every provision in the statute,” Justice Amy Coney Barrett wrote for the majority. “For a cause of action to exist, we would have to create it.”

The court’s three liberal-leaning justices dissented.

Maybe Saba will have more luck in the UK, where it has also challenged the management of some closed-end funds. Weinstein’s recent efforts to buy into ailing private funds managed by Blue Owl and others at discounts have also proven quixotic.

Job moves

• Donald Trump has nominated former Securities and Exchange Commission chair Jay Clayton to be the head of the US intelligence community.

• Beach Point Capital has launched an insurance solutions initiative and named Louis DiFranco as global head of insurance solutions. He joins from PGIM.

• Tether chief business officer Benjamin Habbel is leaving the stablecoin group to return to the private equity firm Limestone Capital, Bloomberg reports.

Smart reads

Shared riches A proposal to give Americans a stake in AI companies has led to a collection of strange bedfellows, the FT’s John Thornhill writes. Democratic socialist Bernie Sanders, Donald Trump and OpenAI chief Sam Altman all support some version of the idea.

Project hurdles Jared Kushner is facing a mounting backlash in Albania as he attempts to build a luxury development on the country’s beaches, The Wall Street Journal reports.

Tech politics Silicon Valley’s huge political spending to fend off AI regulation is a mistake, former Andreessen Horowitz general partner John O’Farrell writes in The New York Times. “It misreads the public mood entirely.”

News round-up

Jeff Bezos says AI will bring ‘golden ages’ not mass job losses (FT)

Emirates to offer insurance to tempt passengers back to Dubai (FT)

MFS auditors investigated by UK accountancy regulator (FT)

Ryanair probed over fees for parents sitting with their children (FT)

European funds split on buying SpaceX over governance concerns (FT)