Editor’s note: We’ve turned the Chaikin PowerFeed over to Dan Ferris…
Dan is an editor at our corporate affiliate Stansberry Research. He has shared his market insights with thousands of newsletter readers over the past two-plus decades.
Right now, Dan is as “bearish” as they come. And as he’ll explain today and tomorrow, Ark Investment Management founder Cathie Wood is a big reason why…
Have you forgotten about Cathie Wood?
Wood’s flagship ARK Innovation Fund (ARKK) is one of the poster children of the current “tech wreck.” It has wiped out billions of dollars in investor capital since early 2021…
In February 2021, this exchange-traded fund peaked at more than $156 per share. Now, in October 2022, it’s trading for around $37 per share. That’s a 76% loss in just 20 months.
You might think losses like that would make someone fade into the background. But that’s not how Wood operates…
Through all the losses, she keeps pounding the table about the incredible opportunities in the tech space. She fails to realize that most of the holdings in ARKK are pure garbage.
And now, Wood is at it again with a new idea…
In late September, Wood launched the new ARK Venture Fund…
The fund’s purpose is to allow anyone – including the smallest (least experienced) investors – to invest in illiquid private companies. Its prospectus says it will be 20% to 85% invested in private companies at any time. The rest will be in publicly traded companies.
Importantly, the ARK Venture Fund is an “interval fund”…
Interval funds get their name from the fact that once you put your money in, you’re only allowed to take it out at predetermined intervals. At those points, the fund’s managers – in this case, Wood’s ARK Investment Management – offer to buy a set percentage of the total outstanding shares at the current net asset value.
ARK Investment Management will offer to repurchase ARK Venture Fund shares once each quarter. That means investors will be allowed to take their money out four times per year.
The company says it will conduct offers to repurchase between 5% and 25% of investors’ shares every quarter. Management has made it clear that it intends to offer to buy back just 5% of outstanding shares quarterly.
As long as few enough folks sell at each offer, you’ll be able to get 100% of your money out during those likely 5% offering periods. But the more folks who decide to sell, the more likely it is that you’ll have to leave some of your money in the fund.
That’s pretty clear from the first page of the prospectus. Take a look (emphasis added)…
In connection with any given repurchase offer, it is expected that the Fund will offer to repurchase only the minimum amount of 5% of its outstanding Shares. It is also possible that a repurchase offer may be oversubscribed, with the result that shareholders may only be able to have a portion of their Shares repurchased.
So under the worst-case scenario… if everybody in the ARK Venture Fund wants their money back all at once, you might only be able to sell 5% of your shares.
You can decide whether or not to accept ARK Investment Management’s quarterly offer. But ultimately, management and the amount of shares other investors want to sell in any given quarter will decide when and how much of your money you get back.
I think it’s likely that some amount of investors’ money will wind up stranded in the ARK Venture Fund. Maybe it won’t be indefinitely… but it will be longer than they would’ve liked.
I expect the private equity and venture capital (“VC”) worlds to experience the same pain as the public markets. But they report their results less often, so the effect will be delayed…
That gives ARK Investment Management enough time to attract a bunch of folks who I think will quickly and deeply regret the investment.
I mean, let’s say the private companies within this shiny new ARK Venture Fund finally admit their assets are imploding as fast as every other tech stock on the planet…
Do you think the quarterly redemptions will be oversubscribed or undersubscribed?
Said another way… do you think the great unwashed who put their money in before watching it get cut in half in a quarter or two will rush to get as much of it back as possible at the end of every quarter? Or will they all get together, act rationally, and not panic?
We don’t need a game of make-believe to know the answer to those questions.
Read the first page of the ARK Venture Fund prospectus and tell me it’s not a roach motel…
You can check in whenever you want. But when you try to check out once every quarter, you can’t really leave. You’re stuck. And you’re surrounded by piles and piles of garbage.
After all, VC asset values are already imploding… But most folks probably haven’t noticed.
That’s due in large part to the quirks of private-company investing and the fact that folks have been calling for the tech VC bubble to burst for more than a decade. Heck, all the way back in November 2011, early Facebook investor Sean Parker said of the VC frenzy…
I don’t know how many more years of this we have – maybe it’s a year, a year or two, max.
But honestly, every asset on Earth is imploding right now. Is it really possible that some of the most speculative, risky, unlikely-to-succeed investments aren’t also in serious trouble?
Tomorrow, I’ll detail how we know the VC bubble is closer to unwinding than most investors expect. And I’ll explain exactly what it means for everyday investors like us.
Good investing,
Dan Ferris
Editor’s note: About 12 hours from now, Dan will share bad news for 99% of investors…
In short, he believes a major market event is about to take place that will take most folks by surprise. And even worse, it could ruin millions of Americans’ retirement accounts.
But the good news is… you can be in the 1%.
Roughly 359,000 folks have already reserved their spots for Dan’s urgent online briefing. It will start at 8 p.m. Eastern time. And it’s FREE to join. Click here for the full details.
(Note: The original version of this essay mischaracterized the ARK Venture Fund’s redemption policy. This version has been edited to correct the description.)
