“The common shares have delivered an average loss of -9.6% and a median return of -29.1%, compared to the average aftermarket return of 47.1% for traditional IPOs since 2015,” the research firm said. And of those 93 that did take a company public, only 29 of those SPACs produced positive returns through September.
Despite these numbers, investors may be intrigued by the exits SPACs offer. In addition to getting their money back if the SPAC does not find a business to buy, investors can redeem their shares if they don’t like the proposed deal. However, that doesn’t mean betting on a SPAC is risk-free. SPACs are expensive to operate and those expenses fall on investors. This is regardless of whether they get a deal or not. If investors want out, there’s no guarantee their shares will be worth what they paid for them.
This also assumes investors can get out. Remember, promoters must find a company to take public if they want a shot at the big payday. This gives them every incentive to deliver a deal. And it could be any deal. Once promoters have found a company they want to acquire, they’re likely to tease greedy investors with promises of huge profits. It’s easy to get caught in the moment and to dismiss the fact that promoters are taking a big chunk of any upside.
Hedge funds are investing in SPACs
So far, the money invested in SPACs has mostly come from hedge funds and other institutional investors. That is beginning to change though. Big banks are beginning to invest in many cases. This is a sign that they’re including the investment into portfolios they manage for clients. individual investors are next. Articles about how to invest in SPACs are popping up everywhere indicating that individual investors are looking to learn how they can get in on the action too.
