SpaceX, an aerospace manufacturer and space transport services company known for its ambitious projects including rocket launches and satellite internet, has suffered a significant setback regarding its potential initial public offering. On Friday, index provider S&P Global announced it would not fast-track the inclusion of Elon Musk’s company into its S&P indices. SpaceX must meet a minimum 12-month waiting period, maintain a free float of at least 10 per cent, and satisfy profitability tests before it can be considered for inclusion, effectively dissolving the bull thesis that substantial passive capital was poised to acquire its shares.
The decision comes after widespread outrage preceding the potential IPO, with concerns raised over whether major index providers were prepared to make historic concessions for SpaceX. While S&P Global and the influential MSCI stood firm on their existing rules, Nasdaq and Russell indices opted to modify their criteria to accelerate SpaceX’s inclusion. This disparity ignited a philosophical debate regarding the definition of “the market” that investors aim to track or outperform.
The situation highlights the evolving role of market indices, which have transitioned from mere benchmarks to powerful allocators of capital. Jack Bogle, founder of Vanguard, championed low-cost, market capitalisation-weighted indices as the purest reflection of the market, free of subjective judgments. However, with bankers and companies now studying and “gaming” index rules, concerns have arisen about artificial bids and distorted free floats. Elon Musk’s unique vision, where capital serves grander aims like colonising other planets and winning the artificial intelligence arms race, further challenges traditional views on corporate profitability.
This development makes it abundantly clear that the concept of passive investing has reached a pivotal point. While trillions of dollars in incremental capital may still be allocated by super funds and other global pension funds to index funds, the SpaceX scenario suggests there’s no longer such a thing as truly passive investing. Both investors and index providers are making active judgments about what constitutes the market they track, especially as trillion-dollar loss-making companies seek public listings with uncertain paths to profitability. Index providers now stand at a crossroads, tasked with deciding whether their definitions should reflect or correct this changing market landscape.
