IPO lockup expirations put concentrated stock risk on advisors’ desks

Getting clients into this year’s mega-IPOs was the easy part. The harder job for financial advisors starts when IPO lockup restrictions lift and clients discover how much of their net worth sits in one concentrated stock position.

SpaceX is the clearest test case. The company floated only about 5% of its shares at its June 12 IPO, versus the roughly 20% a typical IPO sells to the public, and its insider shares unlock in stages rather than on a single date. Up to 1.3 billion shares become available for sale following the company’s third-quarter earnings release, with roughly 800 million more unlocking on Dec. 8 and a larger expiration set for next year. Elon Musk is scheduled to become eligible to sell his shares on June 12, 2027, one year after the IPO. 

The waiting period itself carries risk. An analysis of 543 common stock IPOs from January 2019 to December 2025 by NISA Investment Advisors found that shares underperformed the S&P 500 by an average of 20.4% between the first-day close and the lockup release date. 

For ultra-high-net-worth families, the exposure often runs deeper than the shares they hold directly. Many built stakes through venture capital, private equity and other private-market vehicles that backed these companies before they listed. As those holdings become liquid, advisors are being asked to reduce concentration without derailing tax, estate and broader wealth-planning goals.

Why concentrated stock positions run deeper than they look

Eric Metz, chief investment officer of SpiderRock Advisors at BlackRock, said the company that made a founder, executive or early employee wealthy can also become the biggest risk in that person’s portfolio. Diversification is the goal, he said, but an outright sale rarely makes sense when a client has a very low cost basis, large embedded gains, continued faith in the company or pressing liquidity needs.

“When that company becomes public, the resulting concentration can be broader than the client’s directly held stock position alone. That makes the whole portfolio conversation important. Rather than examining a public equity holding in isolation, advisors need to understand where the client’s exposures overlap and how a liquidity event changes the overall risk picture,” Metz said.

That overlap is growing. SpaceX’s immediate addition to the Nasdaq-100 after its June listing means many clients with a concentrated SpaceX stake also own more of the company through their index funds.

Metz described the decision as a balancing exercise. Selling low-basis shares cuts concentration right away, but it can also produce a large capital gains bill. SpiderRock uses an option-overlay approach designed to change a portfolio’s risk and return profile without an upfront sale. He said this is especially relevant for tax-sensitive clients with heavily appreciated positions.

“Our Exchange Fund Replication strategy first hedges a concentrated position to reduce its risk then replaces that risk with that of an index – all through the use of listed options. The goal is to help clients move from a single-stock risk profile toward broader market exposure in a more flexible and transparent way,” Metz said.

How early should advisors plan for an IPO lockup?

Ben Domingue, founder and managing partner of Family Office Partners, said most clients and much of the industry start too late.

“We often get brought in during the sixth or eighth inning, when the second or third inning would have made everything much easier. Wealth is built through a series of transactions, not one,” Domingue said.

He sees three phases:

1. Take money off the table at the first minority sale, recapitalization or other de-risking event that gives the family a real safety margin.
2. With that cushion in place, wait for a market-value exit on the owner’s own terms.
3. Only then take on real risk.

The most common mistake, he said, is treating the first transaction as if it were the third.

“An example: An owner selling for $500 million who took even $50 million off the table a few years earlier can ride out the other $450 million without bringing stress and anxiety into the family,” Domingue said.

Moving from a private to a public concentrated position does not necessarily reduce risk, he added. Sometimes it only shifts the liquidity problem. The owner gives up control but usually ends up holding a larger and more stable company.

“Public markets bring a new kind of stress. Owners who are used to private valuations suddenly watch share swings move their net worth by eight or nine figures, often while locked up in restricted shares for 12 to 24 months or longer,” Domingue said.

He also warned that owners tend to invest their outside liquidity the same aggressive way they run their companies. “Count the business as part of the portfolio. Even the investment community often fails to treat ownership in the company as a single concentrated position,” he said.

That view lines up with advisors who argue that concentration risk is a planning problem, not just a portfolio problem for first-generation wealth.

Weighing diversification, taxes and liquidity after a listing

Kevin Thompson, founder and CEO of 9i Capital Group, said he approaches the problem from several directions. One is direct indexing, in which a client owns the individual stocks of an index in a separately managed account so that harvested losses can offset gains from selling the concentrated holding. 

“Some believe you should reduce the concentration risk associated with a single company and build strategies through multi-asset direct indexing, which may help offset some of that risk,” Thompson said.

He said overlapping public and private exposure is now common because so much corporate investment and borrowing flows in the same direction.

“Public markets are dominated by large mega-cap companies investing in other companies, all while many of these same businesses issue debt through private markets, creating a domino effect of concentration risk that many investors do not recognize,” Thompson said.

For clients weighing tradeoffs, Thompson pointed to several options:

• Less-correlated assets that still offer return potential, such as hard physical assets.
• Moving up the capital stack into more senior debt.
• Sectors where the government is investing alongside private capital.

He cautioned against reading too much into smooth returns.

“More liquid investments often experience greater observable price volatility, which comes with risk. However, longer investment horizons can help investors ride out short-term volatility. Conversely, less-liquid investments may appear to generate smoother returns over time, but that does not necessarily mean they carry less underlying risk,” Thompson said.

The broader lesson echoes warnings about clients chasing mega-IPO allocations at listing prices: the planning matters more than the pop. Lockup agreements bar company insiders, including employees, their friends and family, and large shareholders, from selling for a set period after an IPO, according to the SEC’s investor education guidance on IPO lockup agreements. For Metz, the advisor’s job is to use that window to move clients from building wealth to preserving it, with diversification, taxes and liquidity handled in one plan.