SpaceX treated as ‘simply too risky’ for funds with governance mandates

The IPO gives Elon Musk more than 80 per cent of the voting rights, while also making him chief executive and chief technical officer, as well as chair of the board. Photo by TIMOTHY A. CLARY/AFP via Getty Images

Article content

The list of sustainability-focused fund managers opting to blacklist SpaceX is growing, as they contemplate the unprecedented level of control that Elon Musk will hold over the rockets-to-chatbot behemoth.

Article content

“It’s simply too, too risky for the type of longevity we want to see in a company,” Marcela Pinilla, director of sustainable investing at Zevin Asset Management LLC, said in an interview ahead of the SpaceX initial public offering.

Article content

Article content

Article content

Zevin is among a group of investors — some niche, some big — publicly voicing their concerns about the norm-breaking governance structure that shareholders of SpaceX will face. The initial public offering gives Musk more than 80 per cent of the voting rights, while also making him chief executive and chief technical officer, as well as chair of the board. He is in effect the only person who can remove himself as chief executive.

Article content

Article content

“This is a company that cannot be sued, cannot be sold, cannot be contested,” Pinilla said. “As shareholders, you’d have to own US$52 billion in shares of a company — that is about three per cent — to raise any issues with the board,” because of the rules that apply in Texas, where SpaceX is incorporated, she said.

Article content

Nell Minow, co-founder and chair of ValueEdge Advisors LLC, said the SpaceX IPO “extinguishes shareholder rights entirely, all but eliminating the right to bring a lawsuit for failure to meet fiduciary standards, cutting off access to books and records.”

Article content

A Bloomberg request for comment from SpaceX, sent by email, went unanswered.

Article content

Zevin joins US$25 billion Danish pension fund, AkademikerPension, whose chief investment officer last month said SpaceX is not only “grossly overvalued” but also marred by a “catastrophic governance structure.”

Article content

Article content

The Starbase facility near Boca Chica beach in Brownsville, Texas. Photographer: Brandon Bell/Getty Images

Article content

In an interview with Bloomberg Television’s Oliver Crook on Friday, AkademikerPension CIO Anders Schelde said retail interest in the IPO reflects a “fear of missing out” at a time when a sober assessment of the risks is what’s needed.

Article content

Article content

SpaceX is a “very risky endeavour,” Schelde said. “Over the coming years many things can and will go wrong,” and good governance “becomes critically important in adverse scenarios.”

Article content

In the United Kingdom, EdenTree Investment Management has also said it will stay away. SpaceX’s intended governance structure would “reduce the protections available to minority investors,” said Hayley Grafton, senior sustainable investment analyst at EdenTree, which oversees about US$4.3 billion.

Article content

EdenTree isn’t comfortable allocating client assets “to a structure where weak investor protections appear to be the price of admission,” Grafton said.

Article content

In the United States, public pension funds have voiced their alarm at the apparent disregard for regular shareholders they say Musk is showing.

Article content

“I understand that we are in an era of founders wanting more control,” New York City Comptroller Mark Levine said in an interview. But what Musk is planning with SpaceX “is way beyond what we’ve seen.”