The Next Hedge Fund Scandal

Patrick Boyle On Finance

Patrick Boyle

Investing, Business

4.9 • 320 Ratings

🗓️ 17 March 2021

⏱️ 12 minutes

🔗️ Recording | iTunes | RSS

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Summary

Send us a textWhat is the latest free money for Wall Street Hedge Funds? SPAC Arbitrage, which is an investment strategy that seeks to acquire shares or units of a special purpose acquisition company (“SPAC”) at or below its net asset value (“NAV”) in order to generate a return through either:An exit at a premium to NAV once the SPAC announces a business combinationAn exit at NAV, being the IPO price plus accrued interest, while keeping the SPAC WarrantIzzy Englander’s Millennium Management i...

Transcript

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0:00.0	Hello and welcome. You are listening to Patrick Boyle on Finance, a podcast exploring ideas from quantitative finance, examining events occurring in markets right now and financial history to see what lessons can be taken away, including interviews with some of the most interesting people in the world of finance. To learn more about the podcast, visit onfinance.org.
0:27.1	There's an old saying amongst gamblers, if you sit in on a poker game and you don't see a sucker,
0:33.0	get up from the table, you are the sucker. This rule applies quite often in the world of finance too.
0:39.8	Now, if there's an investment structure where three types of investor are involved and two of them
0:45.6	have access to a risk-free profit opportunity, it's possibly reasonable to think that the third
0:51.9	is the source of their profits. So what is this structure and who are
0:56.5	the winners and who are the losers? Well, the structure is, of course, the hottest investment
1:01.3	product of the last 12 months, the SPAC, and I'm hoping that you, the viewer, are not the sucker
1:07.1	at this poker table. SPAC promoters are so busy banging out new product right now
1:12.7	that they don't even bother to come up with names for them anymore. Earlier this month,
1:17.4	a SPAC named two was announced. It's spelled with a lowercase T. The goal is to raise $200 million
1:25.0	and take a company public. The name's hardly creative, but I suppose
1:30.2	it's easier to remember than XAEA-12, but I'm getting off topic. So what are SPACs? Well, I covered this
1:39.6	in more detail in an earlier video and I'll include a link to that but SPAC stands for a special purpose
1:45.7	acquisition company and SPACs basically raise cash through an IPO they then invest that cash in
1:53.4	risk-free bonds and have up to two years to search for a private company to buy buying the company
2:00.3	has the effect of taking that company public.
2:03.7	When a SPAC proposes a merger, SPAC shareholders have an option to redeem their shares rather
2:10.1	than participate in the merger.
2:12.3	If they do this, they get back their full investment plus some interest.
2:16.7	If a SPAC fails to complete a merger in the two-year period,
2:21.2	it sells off the bonds and returns the capital to its shareholders with interest.
	...

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