(Bloomberg) -- Meme-stock euphoria turned a closed-end fund into a billion-dollar behemoth this week, untethering it from the stated valuations of its privately held holdings. 

Now its creator says it’s all part of a “discovery process” among investors trying to figure out what its yet-to-list technology companies are worth.  

Destiny Tech100 Inc. (ticker DXYZ), which holds shares of darling unicorns like Elon Musk’s SpaceX and Sam Altman’s OpenAI, briefly surpassed $1 billion this week. That compared with net asset value of $54.3 million, based on its most recent regulatory filing. 

Its swift ascent has been drawing flashbacks to 2021’s meme stock frenzy, especially after the gain sent its price many times higher than the stated value of its holdings. While it’s not uncommon for closed-end funds to swerve away from the value of their underlying constituents, the case of Destiny has few precedents in the US market.

The fund, which put its positions in 23 companies at $4.84 a share in that filing, changed hands at $52.02 as of 11:53 a.m. New York time, for a gain of almost 500% since its listing in late March.

“We’ve just been in the market for two weeks and so over time the market’s figuring out, ‘Wow this is possible for the first time to have access to these kind of companies,’” said Sohail Prasad, the chief executive of Destiny XYZ in an interview on Bloomberg Television. “There will be more participants in the market and more stability over time.” 

Structured as a closed-end fund that tends to keep its number of outstanding shares fixed, DXYZ theoretically is liable to fetch a premium when demand is high and slump to a discount when it’s low. For now at least, investors have shown persistent willingness to pay up for its underlying assets. 

The Destiny fund’s enormous premium stands out in an industry whose asset values are usually overlooked by investors. Closed-end funds frequently trade at a discount, a pattern that have drawn hedge fund mangers to bet on the cap to narrow. For the average closed-end fund, the discount stood at 7.5% at the end of March, according to data compiled by Morningstar Inc., with only 14% of funds garnering a premium to net asset value.

“The problem with closed-end funds is they can be extremely inefficient in pricing,” said Bloomberg Intelligence ETF analyst James Seyffart. “So you can get significant premiums, which is likely what it’s at right now. But it can also, in the future, flip to significant discounts.”

The Destiny fund is among the first few public investment vehicles that allow small-time investors to tap a lucrative and yet risky market that has so far been mostly reserved for big money managers and wealthy individuals.

Prasad started Destiny Tech100 in late 2020 to scoop up stakes in privately held tech firms. The fund started acquiring the majority of its assets in 2021, spending $77.4 million on its US investments. That was an arguably risky period that saw speculative tech shares tumbling on public exchanges. As of December, those stakes were valued at $50.8 million, amounting to a loss of 34%. 

Last year alone, the fund was down 7.3%, significantly lagging the 43% gain in the Nasdaq Composite Index. In an annual shareholder report, Prasad blamed the shortfall on limits to liquidity and wide bid-ask spread that prevented privately held firms to benefit from a repricing in asset prices as a result of higher interest rates. 

Prasad, a dropout from Carnegie Mellon University, has spent most of his career in the world of private investing. He founded Forge Global Holdings Inc. in 2014, a trading platform that went public roughly eight years later through a tie-up with a blank-check company led by Blythe Masters, the former JPMorgan Chase & Co. executive who helped create credit default swaps.

“A ton of founders” of unicorn firms have reached out in the past few weeks seeking to be included in DXYZ, according to Prasad. With a goal to increase the number of holdings to 100 over time, he sees “massive” growth potential in the niche market that bridges the gap between private and public markets. 

“There is going to be a lot of people in the industry that are looking at this right now. Being like this just has the potential to be a better product for venture,” he said. “In the long run, it’s not just individual retail investors, but also institutions that can have a liquid product that invests in the private markets.”

(Update with fund’s background starting in seventh paragraph.)

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