SpaceX millionaires reinvent wealth management

Thousands of SpaceX employees have become instant millionaires and are redefining the asset management business with the combination of their wealth.

As CNBC reports Earlier this week, more than 100 SpaceX employees with total assets between $1 billion and $5 billion joined forces to negotiate better terms with asset management companies. Anticipating a huge windfall from Friday’s initial public offering, the group signed a deal with registered investment adviser Choreo for asset management services at a lower fee than the industry standard.

The deal, where the fee starts at 0.5 per cent and drops as the group’s assets grow, represents a breakthrough in the wealth management industry, which has traditionally charged clients based on their individual assets.

Jason Van de Loo, CEO of Choreo, said SpaceX’s IPO is a rare opportunity to build lasting relationships with a large group of customers whose fortunes are about to skyrocket.

“This is a uniquely transformational event,” Van de Loo said. “We don’t see events like this very often. Most investors have decades to build their fortune. When you catch a moment like this, it’s more like inheriting a large inheritance or winning a lottery ticket. It’s not easy to visualize the transactional components of this event.”

The size of the Choreo group will likely grow over time, and this option will be available to employees of other companies about to go public. But the battle to manage the tens of billions of dollars of new liquid wealth held by SpaceX employees is just beginning.

Private banks, wire transfers, trust companies and other registered investment advisors are all sending teams to California, Texas and Florida and hoping to earn business by hosting events.

Jamie Battmer, chief investment officer of RIA firm Creative Planning, said the firm has dozens of SpaceX clients. He said the biggest question they face is whether to sell their shares.

SpaceX capital, usually issued in the form of restricted stock, represents 90% of the wealth of many SpaceXers, Battmer said. Given such a heavy concentration on a volatile stock, advisors often advise clients to diversify.

But SpaceXers believe deeply in the company’s future and rarely want to sell shares. Battmer said his firm helps these clients with tax-efficient indexing or other option derivative strategies. They also seek assistance with estate planning and philanthropy, including establishing charitable trusts and donor-advised funds.

Most SpaceXers are engineers or technicians by training, so they are immersed in the details of how asset management products work. But although they are highly educated, many are new to the often complex world of wealth.

“Because this is a group of engineers, these are individuals who do a better job of dotting every i and crossing every t,” Battmer said. “But the vulnerabilities that come with a traumatic change in your net worth are very dangerous and must be overcome. Often, highly skilled professionals can make the wrong decisions.”

SpaceXers also have unique ways of coping with financial challenges. Like many aerospace and high-tech companies, SpaceX’s culture is built around whiteboarding and troubleshooting.

Bill Dramis, a senior banker at JP Morgan Private Bank who works with high-net-worth executives and employees of aerospace and defense companies in Southern California, said engineers in general bring the practice of group problem-solving to asset management.

“Many of these people we meet are incredibly smart and love doing whiteboard examples with their peers,” he said. “That’s how they grew and built their knowledge base. Now they’re like, ‘I have a problem with wealth creation, tax implications, philanthropic planning and giving.’ And they want to do it together with their peers. “They put it on the table and gave it a stress test.”

SpaceXers also rely on AI for wealth advice. Consultants say SpaceX employees often come to meetings with suggestions from Anthropic’s Claude or OpenAI’s ChatGPT.

“What’s been interesting for us so far is that we’re finding creative ways to leverage AI as part of these conversations,” Van de Loo said. “I guess naturally the first instinct for this group of employees is to ask Claude, ‘What should I do?’ is to ask.

“They bring that output into conversations with our team, and we can say, ‘Okay, this is where this output applies, but this might be a product-specific solution, not a planning solution,’” he said.

But most importantly, SpaceXers are looking for wealth advisors who can truly educate them.

“We are here to give advice to people who are encountering these conditions for the first time,” Dramis said. “Most of the questions we get asked are: ‘Help me evaluate scenarios and trade-offs.’ “We have a very long-term history of helping clients manage and continue to manage concentrations as their own wealth.”