Just last week one of Michael Klein’s SPACs bought e-vehicle company Lucid Motors Inc., a Tesla, Inc. Chamath Palihapitiya, the venture capitalist, used a SPAC in 2017 to take a 49% stake in Sir Richard Branson’s Virgin Galactic, and was reported last month to have created another seven special purpose corporations. The largest SPAC to date is the USD 4 billion raised last year by hedge fund Pershing Square Capital’s founder Bill Ackman. High-profile sponsors in high-profile industries raising capital are helping to drive investor demand. That has prompted a fishing frenzy for target companies, which are often start-up technology firms developing automotive or space technologies, sustainable energy, or older businesses in private equity portfolios. An estimated 40% of those investment volumes come from retail investors, around twice the retail share of participation in regular listed US equity markets. Over the last year, SPACs have raised more than USD 137 billion, according to Bloomberg, ten times more than in 2019. When investors place USD 10 shares with the SPAC, which then searches for a firm to take public, they do not yet know what the target will be.Įvery week sees dozens of SPACs launched. SPACs are shell companies with a two-year lifespan, created with a promise to buy another business within that time. They also come with caveats that investors should carefully examine. These special purpose acquisition corporations, or SPACs, promise firms a simpler, cheaper and alternative path to a public listing. ‘Blank cheque’ companies are attracting billions of dollars from retail investors and hedge funds in search of capital gains and access to private market returns. The low yield environment continues to favour alternative sources of return, and unless they suffer a setback, SPACs appear here to stay.Once invested, returns have been mixed and their structures may obscure costs to some investors However, pre-merger, SPACs trade without fundamentals.‘Special purpose acquisition corporations’ offer a way for investors to participate in private markets and companies to shorten the typical IPO timeline.High profile, ‘blank cheque’ corporations saw a ten-fold rise in inflows since 2019.
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