Cathie Wood’s Ark Investment Management is giving ordinary investors access to a venture capital fund while working on ways to make the new offering accessible to financial advisers.
The new fund, announced Tuesday, will aim to invest about 70% of its portfolio in private companies and 30% in public companies, Max Friedrich, a research analyst at the firm who is a member of the ARK venture fund’s investment committee, told MarketWatch by phone.
ARK, known for targeting disruptive innovation with its exchange-traded funds that invest in stocks, is giving investors access to its venture fund through a minimum $500 initial investment via an online platform provided by fintech company Titan. ARK has been investing in innovation in public markets since 2014.
“We see these technology trends occurring, in our view, earlier than most,” said Will Summerlin, a research analyst at ARK who also is part of the firm’s venture investment committee, by phone. “As part of the research process, we get to know private companies and early-stage investors.”
Summerlin said that through those experiences ARK has had “many opportunities in the past to invest in great private companies that have now been successful and gone public, but we didn’t have a fund through which we could actually make those investments.”
While ordinary investors buy ETFs for exposure to the stock market, “normally, nonaccredited retail investors are blocked out of investing in private funds,” said Friedrich. But ARK was able to open its venture pool to all U.S. investors by structuring it as an “interval fund” that is regulated and allows the firm to invest in both public and private companies.
ARK also has structures in place to accommodate larger institutional investors, family offices and high net-worth individuals to invest in the fund, said Friedrich. “We’re also working on ways to make this fund accessible to financial advisers and wealth-management platforms,” he said.
While institutional and wealthy investors have long had access to venture capital funds, top-tier VC managers tend to be “very exclusive” and may charge more in carried interest, according to Friedrich. It’s even hard for many institutional investors to have access to them, he said.
“The ARK Venture Fund charges a management fee of 2.75% but does not charge any carried interest or load fees,” the firm said in its announcement. “The total expense ratio of the Fund is estimated to be 4.22%, which is what we believe is typical for other funds offering access to private companies.”
Unlike traditional venture capital funds, ARK says it’s offering some liquidity.
“Most venture-capital firms are illiquid for seven to 10 years,” Summerlin said. “You have to wait for companies to get acquired or go public to get your money back.”
But individual investors who may have money with a financial adviser might “need liquidity in the short term,” meaning they might not be able to lock up their capital for a decade, he said.
ARK’s venture fund, which is structured as an interval fund – or an “open-ended evergreen fund” — allows investors to redeem capital on a quarterly basis, according to Summerlin.
“Up to 5% of the overall fund can be redeemed every quarter,” he said. “At the end of the quarter, we look at all the redemption requests and we determine how much you can redeem.”
For example, someone who invested $1,000 would likely get all that money back if they were the only investor requesting a redemption, Summerlin explained. But if every investor in the fund requests withdrawals that same quarter, 5% of that person’s total position may be redeemed, he said.
“So, if some investors say they want to get their money back,” said Summerlin, “you’ll likely get somewhere between 5% and 100% in a given quarter.”
Meanwhile, technology and growth stocks have been pummeled this year, with the tech-laden Nasdaq Composite
tumbling 30.8% through Tuesday, according to FactSet data. Wood’s flagship ARK Innovation ETF
has tanked around 60% in 2022.
“I think if you look back historically at venture capital fund vintages during or after times of harsh economic environment, they tend to be the best-performing vintages,” said Summerlin.
“Last year probably was not a good time to invest in private companies,” he said. “Valuations got out of control in many cases, but today we’re seeing valuations really correct downward.”