SPACs are new, bright and shiny, they come with celeb endorsements and they are guaranteed to make you money. Or, they are an accident waiting to happen, take your pick.
SPACs are the latest idea from across the pond, companies which raise vast amounts of capital from retail investors but have no idea what they are going to do with it. Of course, once they have the hard earned savings of a couple of million people they will find a profitable investment somewhere and buy it. There is considerable pressure to launch SPACs in the UK, I hope the regulators resist.
They will make their managers and promotors many millions and even perhaps enrich some private company owners who find someone with ready cash trying to buy them out, but for private investors this is very risky.
During the South Sea bubble it was not just the South Sea company that crashed, its apparent success lead to the floating of numerous other highly dubious enterprises. The worst of which was the ‘Company for carrying on an undertaking of Great Advantage but no one to know what it is.’
OK that was a satirical joke on the Bubble from the time but like all good satire it has stood the test of time. Should you really give your money to someone who says they plan to invest it but they didn’t know what in? Or, knowing that plenty of people will do that given half a chance, should the regulators let them have that chance?
https://jonty.substack.com/
Special Purpose Acquisition Companies (Spacs) are preditors looking for business opportunities with a view to making a profit that has not been previously sought out. If the listings regulators can be satisfied as to the risks of the investment then arguable the risks can be regulated to a greater or lesser extent.
Will these be sub-prime type investments? Depends on the target but with adequate due-diligence by the investor and market regulator then the acquisition vehicle has the potential to be successful and make money for their investors.
Investment vehicles come and go and we should not be frightened of change but understand it, welcome in its benefits and keep an eye on the bits we are not so keen on.