The Trap of the 'SpaceX ETF': When Daily Liquidity Collides with Non-Sellable Assets
The tale of the ERShares Private-Public Crossover ETF (XOVR) serves as a textbook case of what happens when a vehicle designed for daily liquidity attempts to hold an asset that exists on the other end of the spectrum. The business thesis was straightforward: provide exposure to coveted private companies—with SpaceX as the major draw—via an ETF, making it accessible for investors unable to enter private funding rounds.
In February 2026, that promise collided with reality. Following significant redemptions, XOVR ended up with 44.5% exposure of its assets tied to a Special Purpose Vehicle (SPV) related to SpaceX, far exceeding the 15% limit on illiquid assets set by the SEC in the U.S. This skyrocketing number wasn't due to the manager suddenly purchasing more SpaceX that day, but rather the typical accounting and operational effects of a run on withdrawals: to fund redemptions, liquid assets are sold first, causing the remaining illiquid asset's proportion to rise. In this case, what remained was far too substantial.
The news—"The SpaceX ETF is in trouble," reported in the Financial Times—holds less intrigue due to the SpaceX name and more significance for what it reveals: the market is attempting to package illiquid private assets in products designed for something else. And when flows reverse, the design becomes the risk.
How to Create a Liquidity Crisis Within an ETF
XOVR combines a leg of public equities with exposure to private entities through SPVs. Under normal circumstances, this structure operates as a marketing narrative: an investor buys a share of the ETF and feels they "own SpaceX" without the typical processes, documentation, and restrictions of the private market.
The problem arises when the ETF faces significant redemptions. On February 25, 2026, the fund experienced net outflows of approximately $630 million. Under this pressure, the manager had to liquidate what they could sell immediately: the public holdings. This action had a direct mechanical effect: the relative percentage of the illiquid asset increased, even though the illiquid asset itself did not change.
This phenomenon was observed clearly. The exposure to SpaceX—via the SPV—had been rising since 2024: it averaged around 9% of assets since December 2024, reached 21.5% by February 20, 2026, and escalated to 44.5% by February 26. Concurrently, there were allocation decisions that inflated the nominal size: an injection of $128 million at the end of December 2025 and another $77 million on February 9, 2026.
The outcome formed a dangerous mix: an ETF that must maintain daily liquidity became "locked in" with a massive block in an instrument that, by its nature, cannot be unwound at will without cost. Even if the manager manages to sell part of the SPV, doing so in a withdrawal context usually involves discounts or frictions. The crisis isn't an isolated event; it's a dynamic: the more outflows, the more concentration of illiquid assets; the more concentration, the more market doubts; and those doubts feed into further outflows.
SpaceX as Bait, SPV as Friction, and Public Portfolio as a Burden
The narrative of XOVR leveraged genuine scarcity: access to SpaceX is limited and often funneled through intermediary structures. In practice, this creates demand for products that "package" that exposure. When the product is an ETF, the operational appeal is enhanced: simple buying and selling, standard custody, and a perception of transparency.
However, the reported performance suggests the "SpaceX bait" did not translate into results for investors. According to the briefing, as of February 20, 2026, the ETF recorded an annualized return of -4.6% since initiating the position in SpaceX (December 3, 2024). During the same period, the Nasdaq 100 rose by +15.5% annualized and the S&P 500 by +13.0% annualized. In other words: even if SpaceX appreciated significantly, the overall product did not capture that value.
There are two layers of explanation, both operational. The first is the friction inherent to SPVs: costs, dilution, and discrepancies between "observable" valuations and realizable value when liquidity is needed. Morningstar, cited in coverage, pointed out that the structures used were "so costly or dilutive" that the ETF ended up with "almost nothing to show" despite having correctly anticipated valuation direction.
The second layer concerns the public portfolio: the fund was not merely a "SpaceX proxy"; it also needed to generate returns from its public component. But that block was sold to fund redemptions and lagged behind its benchmark: by December 2025, its one-year trailing return was over 340 basis points below the benchmark mentioned in the briefing.
The final result is an uncomfortable equation for the investor: the part meant to provide liquidity and returns (public equities) performed poorly, while the part that justified the product (SpaceX) offers a narrative but cannot be easily monetized within the daily dynamics of an ETF.
The Issue is Not SpaceX, It's the Mismatch Between Promise and Architecture
When a product promises exposure to private entities within a liquid format, it is essentially selling a transformation: turning an illiquid investment into a tradable share. That conversion is not free. If the market goes into an
