The Past and the Present – SPACs and Hedge Funds
By Shaun Ang, Nikos Motsis, Parthav Maheshwari, Analysts at LSE SU Trading Society
SPACs in 2020 and 2021
In 2020, we saw SPACs’ popularity grow and the list of SPAC sponsors improve. Companies such as XL Fleet, Canoo, Fisker and Nikola have all been acquired by SPACs. The latest high-profile company to go public through a SPAC would be 23andMe, expected to merge with Richard Branson’s VG Acquisition. Apart from businessmen, multiple Wall Street figures have launched SPACs for the first time, some even made spin-offs. “Wall Street is in the grip of SPAC-mania”, as the Financial Times states in its recent articles. Former Facebook executive Chamath Palihapitiya, the founder of Social Capital, and Bill Akman of Pershing Square engaged in multiple deals, becoming two of the most prominent figures of 2020’s SPAC mania. Bill Akman raised $4bn for his SPAC back in summer. At the end of 2020, we saw Airbnb IPO on the Nasdaq Global Select Market, turning down an approach by Bill Akman’s SPAC. We also saw Social Capital Hedosophia take Opendoor public on Nasdaq. Now Fintech SoFi will go public for $8.7bn by merging with Social Capital Hedosophia V.
However, 2020 also taught us that we should approach technology companies’ mergers with
“blank-cheque” business with caution. Nikola is one of these examples, which was involved
in multiple controversies since the merger and experienced $117m in losses. With David
Solomon raising doubts about the pace at which SPACs continue to list, several important
questions remain: Should we be concerned about incentive structures in SPACs? Will there
be regulatory action? Should SPACs be considered a threat to the stock market, as they
contribute to the tech bubble inflation, like the dotcom bubble? Will the SPAC boom end with
a boom any time soon? When is the bull market going to end?
Hedge Funds in 2020
Plenty of hedge funds have benefited from the return of market volatility, finally outperforming since the financial crisis. However, this market volatility widened the gap between hedge fund managers’ performance to the levels previously seen back in 2009. For instance, Pershing Square raised $2.6bn on Bill Akman’s big short on corporate credit, while the volatility also produced some of the biggest losers among top hedge funds, such as Winton Group and Renaissance Technologies.
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