SpaceX and OpenAI: The Mega IPO Grift

Some massive companies are set to go

public very soon. Private companies like

SpaceX, OpenAI and Anthropic would rank

among the largest companies if they went

public and index funds would be forced

to buy their stock. That means that if

you are an index fund investor, you may

soon be investing in these companies

whether you like it or not. The problem

is that most IPOs are terrible

investments and these ones in particular

raise some questions. I'm Ben Felix,

chief investment officer at PWL Capital,

and I'm going to tell you what the

upcoming mega IPOs mean for you and your

portfolio.

In this video, I'm going to take you

through how stock indices and the index

funds tracking them include IPOs, how

this might affect index fund returns,

and what you can do about it. I'll also

cover whether index fund investors are

missing out on private market returns,

which is a common perception based on

companies staying private longer. Index

funds are generally great investments

because they roughly deliver the returns

that the public stock market has to

offer. Since their primary role is

representing the stock market, some

stock indices aim to include new IPOs

soon after the company goes public. This

makes sense for the purpose of

representing the public stock market.

But the problem for index fund investors

is that IPOs have had historically

terrible returns. I'll come back to that

point later. Index funds today control

trillions of dollars. So, if you're a

new company listing on the stock market

or an investment bank facilitating an

IPO, getting the stock included in a

major index or multiple indices can mean

huge investment dollars flowing into its

shares on the public market as index

funds are forced to buy, giving sellers

liquidity and pushing up the share

price. This makes index inclusion very

desirable for shareholders of the newly

listed company, but probably not so much

for the index fund investors who are

left holding the bag. And it is often a

bag that they are left holding.

Companies tend to go public when they

think they can sell their stock at a

high price. Meaning, the moment you can

buy their stock on the secondary market

is precisely when the insiders believe

it's overvalued or at least nicely

valued. If you're an investor, you

probably don't want to buy an overpriced

stock, but index funds don't have that

kind of discretion. They're forced to

gobble up whatever is included in the

index, regardless of its price. The IPO

inclusion rules vary across indices. For

example, as of right now, the S&P 500

requires a stock to have been trading on

a public exchange for 12 months before

inclusion, while the S&P total market

index allows for inclusion within 5 days

for stocks that meet certain criteria.

This is called fasttrack entry which is

important to understand. Basically

stocks that meet certain criteria can be

eligible for near immediate inclusion in

some total market indices. As I

mentioned, the S&P 500 has historically

required shares to trade for a year

before inclusion. But as reported by

Bloomberg, S&P may be considering an S&P

500 rule change to accelerate the

inclusion of mega IPOs like SpaceX.

NASDAQ is considering similar changes

for the NASDAQ 100 to accelerate

inclusion. The implications here for

index fund investors are important. A

2025 paper looks at how fast track entry

into Crisp, that Center for Research and

Security Prices Indices affects stock

returns and IPO deal structure. VTI, for

example, a large ETF, tracks the CRISP

US total market index. Crisp adds

eligible securities to the index within

as few as 5 days for fasttrack entry.

The authors of this paper show that

expected index investor demand for IPO

shares causes FastTrack IPOs to

outperform their non-fastrack

counterparts by over 5 percentage points

following their listing. This

outperformance peaks at the index

inclusion date and reverts significantly

within two weeks thereafter. Basically,

index funds are being frontr run by

intermediaries like hedge funds who know

that index funds are going to be buying

the shares once they become eligible for

index inclusion and then the index funds

end up holding the shares as they revert

back down closer to their IPO price. The

authors call this a shadow tax largely

paid by index fund investors. It's like

ticket scalpers for concerts and sports

events. Another important index

definition that's proving to be relevant

to mega IPOs is the concept of free

float. Free float is the proportion of a

company's shares that are available for

purchase in the public equity market.

Most major indices have a minimum float

requirement and weight stocks by their

public float. A company could go public

while only making a small portion of

their overall market capitalization

freely available on the public exchange.

This would be referred to as a lowflat

IPO. As reported by the Financial Times,

SpaceX plans to float less than 5% of

its equity, much lower than the average

IPO. With a $ 1.75 trillion valuation,

but only a 5% public float, most indices

would weight it at its float of 88

billion, and many would actually exclude

it altogether. NASDAQ currently has a

10% minimum float and weight stocks

based on the value of all listed shares

of the company with no regard for free

free float, which is unique. But they

recently approved rule changes following

a public consultation to speed up IPO

inclusion, eliminate the lowflat cutoff,

and introduce a float factor in their

waiting of lowflat stocks. The cynical

view on this is that NASDAQ is changing

the NASDAQ 100 index rules to win SpaceX

over in an effort to get their listing

on the NASDAQ exchange. including in the

index would force significant index fund

buying, which likely ends up being good

for SpaceX, its early investors, and

NASDAQ, but potentially comes at the

expense of NASDAQ 100 index fund

investors. Some indices like the crisp

US total market index tracked by VTI

continue to have a low float cutoff of

10% for fasttrack entry into the index.

Between inclusion criteria and index

waiting methodologies, there's some

uncertainty about how these mega IPOs

will initially show up in indices. But

there's no question that their listings

will change the public market over time.

That's likely why index providers are

considering making changes to get these

companies represented in their indices.

To reiterate a point from earlier,

indices are meant to represent the stock

market. A blog post from index provider

S&P Global shows that just SpaceX,

OpenAI, and Anthropic would make up 2.9%

of the S&P World Index at their full

market caps. That's almost as much as

Canada. But these numbers assume that

the total market cap of the companies is

included in the index. Since many of

these IPOs are expected to have low

public floats, that should be accounted

for in estimating their market impact.

In another blog post, index provider

MSCI calculated the potential changes to

the MSCI allcountry world investable

market index in the event of some of the

largest private companies going public

in 2026. This was written back in

February 2026 when SpaceX had a quaint

valuation of only 800 billion, but the

general points are still relevant. They

ask in the blog post what would happen

to the index to this world index if the

10 largest companies from the Msei all

country venturebacked private company

index went public. Since the free float

at the time of listing is unknown, they

go through a few scenarios. At a 5%

float, only four of the 10 large private

companies would achieve index inclusion

based on MSCI's inclusion rules. At a

10% float, seven of the 10 companies

would achieve index inclusion, but not