if you want to see the future of so many of the special purpose acquisition companies currently flooding the market, look to the recent past. Nearly five years ago, Landry’s Seafood billionaire Tillman Fertitta took Landcadia Holdings public to the tune of $345 million. No matter that, true to the SPAC “blank check” model, there was not yet any operating business—dozens of hedge funds piled into its $10-per-unit IPO.
In May 2018, Landcadia finally located its target: a budding online restaurant delivery service called Waitr that would merge with the SPAC in exchange for $252 million in cash. Fertitta touted the fact that the Louisiana startup, with $65 million in revenue, would now have access to 4 million loyalty members of his restaurant and casino businesses, and a new partnership with his Houston Rockets NBA franchise. Two years later, though, you very likely have never heard of Waitr. As such, its stock recently traded at $2.62, down more than 70% from its IPO price (the S&P 500 has climbed 76% over the same period).
Waitr was a disaster for pretty much anyone who bought the stock early. But the hedge funds that purchased Landcadia’s IPO units did just fine. Virtually all recouped their initial investment, with interest, and many profited by exercising warrants in the aftermarket. “SPACs are a phenomenal yield alternative,” says David Sultan, chief investment officer at Fir Tree Partners, a $3 billion hedge fund that bought into Fertitta’s Landcadia SPAC IPO—and pretty much any other it could get its hands on.
The SPAC boom of 2020 is probably the biggest Wall Street story of the year, but almost no one has noticed the quiet force driving this speculative bubble: a couple dozen obscure hedge funds like Polar Asset Management and Davidson Kempner, known by insiders as the “SPAC Mafia.” It’s an offer they can’t refuse. Some 97 percent of these hedge funds redeem or sell their IPO stock before target mergers are consummated, according to a recent study of 47 SPACs by New York University Law School professor Michael Ohlrogge and Stanford Law professor Michael Klausner. Though they’re loath to talk specifics, SPAC Mafia hedge funds say returns currently run around 20%. “The optionality to the upside is unlimited,” gushes Patrick Galley, a portfolio manager at Chicago-based RiverNorth, who manages a $200 million portfolio of SPAC investments. Adds Roy Behren of Westchester Capital Management, a fund with a $470 million portfolio of at least 40 SPACs, in clearer English: “We love the risk/reward of it.”
What’s not to love when “risk” is all but risk-free? There’s only one loser in this equation. As always, it’s the retail investor, the Robinhood novice, the good-intentions fund company like Fidelity. They all bring their pickaxes to the SPAC gold rush, failing to understand that the opportunities were mined long before they got there—by the sponsors who see an easy score, the entrepreneurs who get fat exits when their companies are acquired and the SPAC Mafia hedge funds that lubricate it all.
It’s about to get far worse for the little guy. Giant quant firms—Izzy Englander’s Millennium Management, Louis Bacon’s Moore Capital, Michael Platt’s BlueCrest Capital—have recently jumped in. Sure, they all raised billions based on algorithmic trading strategies, not by buying speculative IPOs in companies that don’t even have a product yet. But you don’t need AI to tell you the benefits of a sure thing. And that means torrents of easy cash for ever more specious acquisitions. Says NYU’s Ohlrogge: “It’s going to be a disaster for investors that hold through the merger.”
In the first 10 months or so of 2020, 178 SPACs went public, to the tune of $65 billion, according to SPAC Insider—more than the last ten years’ worth of such deals combined. That’s just one indication that the current wave of blank-check companies is different from previous generations.
Continue reading your story on the app
Continue reading your story in the magazine
Pandu Sjahrir Bets on Unicorn IPOs on the Indonesia Stock Exchange
Japan: the Land of the Rising Stocks
The Japanese equity market is the 3rd largest in the world and responds to global economic conditions more sensitively than other developed markets. Many international investors still associate investing in Japanese equities with “Japan lost decade “ and the narrative of Japan as a country with no growth and a stock market that chronically underperformed the US and even European equities. The coronavirus pandemic has done what seven years of Abenomics could not: push Japan’s Nikkei 225 benchmark above the 25,000 marks for the first time since 1991.
Indonesia to Establish Electric Battery Corporation
Indonesia is gearing up for establishing an electric battery company to meet the country's prospective development of electric vehicles including motorcycles, cars and buses. The State Owned Enterprises Ministry has been preparing a holding company, Indonesia Battery Corporation (IBC) that will build a battery industry for electric vehicles, which was expected to be completed in the first half of 2021.
Room for Recovery
RedDoorz books growth amid pandemic
The World Climate Change Conference, COP26, will be taking place in November 2021 in Glasgow, Scotland. Following a period of US indifference to such global discussions as espoused by its predecessor, the new administration's decision to immediately re-join the Paris Accord will help to bring a stronger emphasis and commitment from major global economies to the concrete actions which are needed to address the impacts of climate change on the world's ecosystem. A strong delegation is expected from Indonesia to set out what has been done towards its commitments to cut back carbon emissions as well as to help shape the discussions for future actions.
Researcher - Adi Utarini
Professor Adi Utarini is an Indonesian public health researcher fighting dengue in Indonesia. She worked with the World Mosquito Program (WMP), a joint initiative between Monash University and Gadjah Mada University research team, and has successfully utilized Wolbachia bacteria to fight dengue fever disease - one of the country's major health problems. There were nearly 96,000 infection cases in 2020 in Indonesia with 661 fatalities.
Credit Card Killer
Millennials were shunning plastic and supposedly wary of consumer debt. AFFIRM ’s MAX LEVCHIN saw a way to repackage buying now and paying later for younger folks—and it’s made him a billionaire.
Sjamsul Nursalim Clears Wanted List
The Corruption Eradication Commission (KPK) decided to stop its investigation on graft cases surrounding Bank Indonesia Liquidity Support (BLBI) that named Sjamsul Nursalim and his wife Itjih Nursalim as suspects since 10 June 2019.
EV in Indonesia–Execution is the Key
Indonesia is rapidly becoming the citadel of Electric Vehicles (EV) in the Region. The media has been abuzz with news of leading car manufacturers like Hyundai and Toyota exploring to set up their EV factories in Java and, of course, the on-again-off-again news of Tesla setting up their EV battery facility locally.
Agrarian Reform in Cities: Options by the Government
Agrarian reform is a goal of the government since the promulgation of the agrarian law of 1960. The agrarian reform concept has also expanded, it's now beyond the redistribution of farms to the farmers but also land to the non-farmers. In cities like Jakarta, farmers are certainly not an essential subject. Instead, illegal houses and illegal occupancies that create slum areas are more problematic. Those are people who live in a building on a land plot that he does not own or cannot prove legal ownership. Never-ending legal disputes involving many parties claiming land ownership are a huge problem to be resolved.
WAITING FOR ELON
It’s not easy to compete with Miami and Austin for high-tech jobs. But Adelanto, Calif., which boasts a light regulatory environment, an enthusiastic city manager, and plenty of dirt, is giving it a shot
When you’re on the road, there are ways you can beat stress before it beats you
How the SPAC Era Will End
A fever has swept Wall Street, and it’s stretching all the limits
Flight School For Robots
A startup is building autonomous cargo planes for FedEx, with the long-term vision of shuttling around people, too
BONE CANCER SURVIVOR TO JOIN BILLIONAIRE ON SPACEX FLIGHT
After beating bone cancer, Hayley Arceneaux figures rocketing into orbit on SpaceX’s first private flight should be a piece of cosmic cake.
BIDEN SEEN LIKELY TO KEEP SPACE FORCE, A TRUMP FAVORITE
To the last moments of his presidency, Donald Trump trumpeted Space Force as a creation for the ages. And while President Joe Biden has quickly undone other Trump initiatives, the space-faring service seems likely to survive, even if the new administration pushes it lower on the list of defense priorities.
Well, That Was Weird
Tendies. GameStop. Silver. SPACs. What. The. Hell. A sane person’s guide to a bonkers stonks market
Get the Insider Scoop at Newly Public Health-Care Companies
Last year was a good year for at least one thing: initial public offerings in the U.S. With the frenzy of listings of special purpose acquisition companies, or SPACs, IPOs raised a total of $154 billion in 2020. That total was by far the largest of the past 10 years, and more than double the total from 2019, according to data compiled by Bloomberg.
RIGHT AT HOME: SPACE-THEMED DECOR BRINGS THE HEAVENS INDOORS
It was a tough year here on Earth, but 2020 was a bright spot for space exploration. SpaceX sent its futuristic Starship to new heights, three countries launched Mars missions, and robots grabbed debris from the moon and an asteroid.
Tread Carefully in a Hot IPO Market
Be wary of high-priced debuts in a market that’s stacked against you.