The frenzy behind the blank check companies known as PSPC may have lost steam, but Boaz Weinstein, founder of hedge fund Saba Capital Management, says there are still reasons to view them as a investment.
“I see them as an option over euphoria,” Weinstein said Barron in a recent interview.
The SPACs are formed by sponsors who raise capital through an initial public offering with the intention of subsequently merging with a private company and listing it on the stock market. Sponsors typically have two years to enter into a deal, during which time investor funds are held in an interest-bearing account, or in trust, usually in US Treasuries.
In the ideal scenario, PSPC merges with a company at a discounted valuation, allowing holders to reap multiples on their typical $ 10 per share investment in PSPC. But even a less random outcome can still generate significant returns for investors, especially since many SPACs are currently trading below their trust value.
“When I think about the value proposition of investors who are a little worried about inflation and have this duration risk, who can instead switch PSPCs, they not only can get an excess return, but they also get a very valuable option on returning exuberance to the PSPC market or having the PSPCs they owned find interesting acquisitions, “Weinstein said. Some companies that went public through PSPCs more than doubled in their first year. negotiation week after their merger.
He further discussed opportunities in PSPCs at Robin Hood’s investor conference last week, particularly in light of still weak returns.
“If you were to buy a 5-year bond because a yield of 75 basis points was enough to get you excited or a 10-year at 1.45%, you are taking a significant risk that inflation is not transient or that people fear that it is not. transient, ”Weinstein said. Higher inflation erodes the value of fixed income investments.
Weinstein has been investing in PSPCs for more than a decade, holding about 7% of the market in 2006, when it was valued at $ 15 billion. Today, the market is more than 10 times larger than it was 15 years ago, and Weinstein estimates that it holds around 1%.
Write to Carleton English at [email protected]