A niche ETF's massive SpaceX investment has ballooned to nearly 40% of its assets, creating unprecedented challenges for exchange-traded funds holding unlisted securities. The ERShares Private-Public Crossover ETF now faces questions about whether the ETF structure can safely contain private assets that are difficult to trade and value.

Around 37% of XOVR's assets are invested in Elon Musk's rocket company, a figure that has climbed above 40% recently. This concentration far exceeds SEC limits on illiquid securities in open-ended funds, which cap such investments at 15% of assets. The unusual situation arose as heavy inflows boosted the fund's size while investors later redeemed shares, forcing the fund to sell liquid public stocks rather than its hard-to-trade SpaceX stake.

The controversy highlights broader industry challenges as fund managers race to give retail investors access to private markets through ETF wrappers. While most institutional investors express willingness to access private assets via ETFs, XOVR demonstrates the practical difficulties of combining daily liquidity with investments in companies that barely trade at all.