Are SPACs A Bubble Waiting To Burst?
David Hunt is responsible for overseeing a $1.4 trillion war chest as chief executive officer of PGIM Inc. PGIM, one of the world’s largest asset managers, doesn’t invest in SPACs directly and is being “very careful” about taking on indirect exposure, Hunt said.
“We have these very unclear sources of capital that are given very broad mandates to move wherever they want,” he said in an interview on Bloomberg Television. “Personally, I begin to see that as a little bit of a sign of a bubble rather than as an ingenious new invention," he said.
SPACs have raised some $70 billion in 2020 and strategists at Goldman Sachs Group Inc. expect a “high level of SPAC activity to continue into 2021.”
Hunt said he’s “constructive” on risk assets in general because “it’s never been more punitive to hold cash” and thinks markets are at least 18 months away from a major correction.
While SPACs can be confusing they are actually a great tool for private investors. Normally a blank check company will raise 100s of million of dollars both in private through a PIPE and by selling their shares to the public. Initially the blank check company will appear as the symbol named after the black check company sometimes this symbol will be followed by a "/U" this usually indicates that a warrant is accompanying the shares. As the blank check company uses the money they raise to purchase a start-up or other company you will begin to see the separation of the warrants and the main shares. If you don't like the start-up the blank check company is merging with to take public as a shareholder you will also have an opportunity to opt out of the shares and receive your money back (there is even a way to do this and keep your warrants).
I personally don't think they are a bubble, but its smart to view anything new with a bit of caution. I have already found a good to capitalize on these products as a private investor and I know others will too.