SPACs are blank check companies that are created as shells to merge with an actual company, taking it public in the process.
Special purpose acquisition companies (SPACs) have taken the IPO market by storm. SPACs are blank check companies created as shells to merge with an actual company, taking it public in the process. Last year, of the $166.4 billion raised in initial public offerings, $83.4 billion came through SPAC mergers. The trend has continued in 2021, with 56 new SPACs brought to market just in the first three weeks alone. Hedge funds have been taking notice of the SPAC trend, and many have revealed positions in various SPACs. Most funds are bullish on the trend, although at least one thinks SPACs are in a bubble. North Rock’s Kelly Perkins said they are bullish on SPACs, describing them as « a key component of North Rock’s Capital Markets business. » In the fund’s fourth-quarter letter to investors, he said they take a proprietary approach to SPAC investing differentiated by their fundamental approach to the business. Instead of taking an arbitrage position by buying and then flipping SPAC shares, North Rock supports sponsors it believes « have a high probability of executing accretive transactions. » Perkins didn’t say which sponsors they supported during the fourth quarter, but he did say that SPACs contributed about 3% to the fund’s return in 2020.
