Investors in blank-check vehicles expect up to $75 billion in liquidity over the next six months as public special-purpose acquisition companies have been forced to return cash in the midst of the listing boom.
The expected surge in Spac liquidations has removed some of the last remnants of one of the most extreme market frenzy in recent years, providing welcome cash to many investors who have suffered losses in this year’s broader market downturn. provide an injection of
Spacs aims to use the proceeds from its stock market listing to take private companies public, but in most cases there is a two-year deadline to complete the acquisition, after which all the funds raised will be of funds must be returned to the investor. expansion.
About $75 billion worth of Spacs will expire between now and the end of February, with another $36 billion due in March, according to Spac Research data.
“This is bullish for the market. Money will come back to the stock market as a whole, because there is no Spacs coming back.”
Investors have poured more than $250 billion into blank check companies since early 2020, but enthusiasm has waned after a series of high-profile disappointments and regulatory crackdowns.
Hedge funds were among the largest investors in the Spac IPO. Some invest through multiple strategic vehicles, while others set up dedicated funds. A senior prime broker said money invested through these funds would likely return to limited partners such as pension funds and university endowments. Multi-strategy funds, on the other hand, can reallocate cash to other areas or meet redemption demands from backers horrified by losses elsewhere.
Hedge funds, which have outperformed the S&P 500 on average so far this year, still underperformed by an average of 6.8% in the second quarter, with investors pulling out a net $7.8 billion, according to Citco.
“The space that didn’t find a deal outperformed most non-macro strategies, [quant] This year’s strategy,” Broker said. “We are seeing an increase in terms of investor redemptions, so this could help support some of them.”
“They’ll be happy to have the cash and be thrilled they didn’t spend it on technology,” said one capital markets lawyer. , may have been the luckiest investment many of them ever made. ”
Investors may experience unexpected gains earlier than expected as they try to avoid being affected by the new tax regime.
Spacs is mostly based in the Cayman Islands, a Caribbean tax haven, but is partially incorporated in the US state of Delaware. Lawyers are concerned that the new tax language on stock buybacks could also apply to redemptions from his Delaware-based Spacs, which he hoped will be funded before the tax goes into effect in January. Giving additional incentives to redeem.
Spacs, knowing that no deal will be found, can call a special shareholder meeting to get some early comfort. It may also ask investors for additional time to finalize a merger, such as Digital World Acquisition Corporation, which plans to merge with Donald Trump’s Trump Media and Technology Group. No, but doing so gives investors the opportunity to redeem their shares.
Even companies that have signed a deal may have to return a large portion of the IPO proceeds to their shareholders. Shareholders may choose to redeem their shares rather than receive them in the newly merged company.
According to Spac Research, the median redemption rate for mergers completed in the past three months was 91.7%.
“Many investors have a much lower risk appetite than they used to, so they’re looking to hold onto warrants and redeem every dollar and 100 cents to get them back,” said Mark Brod, partner at law firm Simpson Thatcher. I prefer.”
Thanks to the recent stock market decline, Brod said even investors who approved the Spac merger are cashing in, hoping they can buy the combined shares at a lower price later on the secondary market. He added that you can choose to