Robinhood’s First Fund Could Spell Disaster for Investors

Investors may soon have yet another option for accessing private markets, but not one they should exercise.

Digital trading platform Robinhood Markets plans to offer a fund that will invest in “five or more private companies that are ‘best-in-class’ growing companies at the frontiers of their respective sectors and industries,” according to recently filed regulatory documents.

Another win for democratized access? I don’t think so. Investors can already access private markets via better investment managers and in better vehicles. Investors should be cautious—Robinhood has a track record of winning at the expense of its customers.

A Brief History of Robinhood

Robinhood popularized commission-free stock trading years before top platforms like Schwab and Fidelity followed suit. It offered a modern interface and gamified app design that appealed to younger investors, making users feel empowered to invest with smaller accounts than traditional brokerage firms sought.

In 2020, Robinhood rose to fame when the coronavirus pandemic prompted a significant increase in retail stock trading. It grew exponentially before its 2021 IPO that valued the company at $32 billion, up 4 times from the year prior based on a funding round before it went public.

At that point in its history, Robinhood arguably lived up to the mythology of its namesake: It seemed to be bucking the industry’s high and mighty on behalf of commoners. But it turns out Robinhood fell likely short of Robin of Loxley’s standard. In December 2020, the US Securities and Exchange Commission fined Robinhood $65 million for misleading customers about its “its largest revenue source,” that is, “payments from trading firms in exchange for Robinhood sending its customers’ orders to those firms for execution.” The SEC found that Robinhood received “unusually high payment for order flow rates,” which caused its customers to receive worse prices than at other brokers. “Commission-free” trading turned out to be not so free after all.

In January 2025, the SEC again fined Robinhood $45 million to settle a range of charges, some of which related to inadequate protection of customer information.

Robinhood’s New Venture

Robinhood is known for bold, innovative moves, but its new fund filing seems reckless. Robinhood, which formed the subsidiary that will manage its proposed fund’s portfolio in August 2025, lacks money management experience and has never offered access to private markets in the US. The firm is operating outside of the circle of competence, as Warren Buffett and Charlie Munger might have said.

Democratized Access or Private Equity Knockoff?

Robinhood isn’t giving investors something new. Retail investors can already access private markets, and some options have been available for decades.

Fidelity, T. Rowe Price, and Baron Capital mutual funds already hold stakes in private companies, like SpaceX. Baron Partners Fund BPTRX keeps 15% of its total assets in SpaceX, while $170-billion-in-assets behemoth Fidelity Contrafund’s FCNTX 1.6% SpaceX stake is worth nearly $3 billion.

Semiliquid funds—unlisted closed-end funds with periodic opportunities to redeem shares at net asset value—have grown to $400 billion because they give public investors more access to private markets while managing the associated risks.

Instead of choosing a semiliquid fund structure, Robinhood filed for a closed-end fund that would list on a stock exchange. Listed closed-end funds aren’t required to repurchase their shares from investors at NAV, so investors will be at the whim of market prices that are likely to swing far away from NAV. Daily liquidity may not be preferable when investing in private assets, at least not at market prices. My colleague Jack Shannon details the risks of listed CEFs investing in private equity in his article about a similar fund to Robinhood’s proposal, Destiny Tech100 DXYZ.

What the Robinhood fund’s portfolio will look like remains to be seen. It claims it will directly invest in its holdings but leaves open several different methods, including noncontrolling stock, warrants, preferred stock, or equity-linked securities. Robinhood’s filing also states it may make indirect investments in private companies. Indirect investments typically come with high costs for access, sometimes with management and performance fees simply for owning an interest in a single company.

The strategy also promises to be highly concentrated. The filing states it will consist of “five or more private companies,” which is not nearly enough to diversify a stock portfolio of liquid public market stocks, let alone private market equities. And a new team at a company that has not offered funds before will be making those high-conviction bets on a handful of often-speculative companies that are complex and challenging enough for the most seasoned fund managers to assess and pick. Investors should be wary.

Alarm Bells Are Ringing

Investors interested in private markets have other choices. Semiliquid funds offer a variety of private equity strategies from top private asset managers. Private company-focused mutual funds offer a great alternative for investors who require daily liquidity.

A heavy dose of caution is required for strategies like this, even when they come from well-respected asset managers, which Robinhood isn’t.