When Spacs attack
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Pushkin. 2025 is a strange year so far. Volatility is high. Regulatory uncertainty is everywhere. No one knows what Donald Trump is going to say next. It's a tricky environment for investors, but one rather spooky and speculative investment is doing surprisingly well this year. The Special Purpose Acquisition Company, or SPAC.

Today on the show, is the SPAC back and is that whack Jack? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I am Rob Armstrong coming to you from a rainy and cool New York City where you can find the Unhedged world headquarters. And the person I'm joined by is not in fact Jack, it's Aidan Ryder, who is a third of the Unhedged newsletter. Aidan, what's up? Good morning. Well,

It strikes me as very odd indeed that there is a SPAC attack this year. Is that what we're calling it? I don't know what should we call it. I mean, it's not like 2021 here when your dog had a SPAC. Yeah, there were about 600 crazy SPACs in 2021. Yes. And they all started really, really getting wilder and wilder the more the year went on.

Yes. But this year so far, we've gotten 44 SPACs, which is not a lot. Listings. But considering that we had only 57 in 2024, that's a meaningful change. I mean, it shows that we're going to have a lot more by the end of the year. Right on. And how much money are we talking about? Ballpark figures? So far, you know, just, you know, in the initial raising, it was $9 billion.

Yeah. Let's take listeners through what one of these things is in case any of them are lucky enough to have forgotten what a SPAC is since the SPAC heyday of 2021. Yeah. So a SPAC is a special purpose acquisition company. Essentially, it is a shell that is listed on the market. So it's just raising cash in and of itself. And the goal is to either buy or merge with an existing company at the end.

So people do this different ways. It could be that you have a company already and, you know, IPOing is a pain in the butt. So you raise a lot of money on the market or you think you might raise more money if it is a SPAC. And then you buy the company and that brings your company public. Okay. So the idea is you're basically listing a pile of money along with a promise to do something clever with that pile of money at some point. Exactly. And you can either do it with a company you already own or, very famously, it could just be a blank check.

You say, I intend to buy a company. Please give me the money to do so. Yes, trust me. Yes. Yeah, that's why it's so weird this is happening. It doesn't feel like a trust me year out there. But these are kind of trust me...

vehicles, as it were. So how do you explain, and you've written quite well about this, but repeat for me, why would 2025 of all years be a year where we see this slight but meaningful resurgence of this structure? I mean, crucially, this is about IPOs and regulation. Yes.

SPACs existed for a long time. They just kind of caught fire in 2021. But a SPAC exists because it's easier to make a SPAC than it is to IPO a company. Yes. There's not a lot to explain. When you're listing a pile of money, what are you going to say in the documents? Yeah. This is a pile of money. It's a pile of money. To buy something, we don't know what yet. Yes. So you list the SPAC instead of an IPO. It's easier. Yeah. And generally, they're treated slightly different under regulation, which makes it easier. Yes.

But the reason they kind of died off in post 2021 could have been because the stock market was doing great. Yes. So why would you invest in these? Indeed. But crucially, it was because Gary Gensler, who was the head of the SEC, was much more stringent about regulating SPACs and tried to regulate them more similarly to a regular IPO. Gensler was such a hate figure for so many people on Wall Street. Yeah.

A former Wall Streeter himself, of course, but he was ruining the fun for everyone when the going was good. Yeah, maybe if you've already seen how the sausage is made, you know what you need to stop. So anyway, he treated them more like regular IPOs. That kind of eliminates the purpose for a lot of people. But this year, based on who Trump has appointed to the SEC and based on kind of the sentiment around the SEC, it's expected that it'll be much easier to do SPACs going forward and that they will be treated differently to IPOs. Right, right.

I remember from the misty past of 2021 talking to people about how that the fact that these things yield is very important. And this is a topic we haven't discussed. Right. So the the shell has this money, that money while they're waiting to buy something.

is put into some yielding investment like short-term treasuries or- Matthew Feeney: Money market fund, yeah. Adam Chapnick: And that yield actually goes back to the investors. It doesn't just sit in the shell accumulating. Generally, it gets kicked back to the investors. That's an important aspect of the story as I understand it. Matthew Feeney: Yeah. So if you're an investor, your money is mostly sitting safe. I mean, it's affected by the price of the SPAC, of course, on paper and- Adam Chapnick: It's on markets. They can go up and down. Matthew Feeney: And we should note that most SPACs go down.

I think they list that in the risk factors in the prospectus for these things. Most SPACs go down. Yes. So many, many SPACs go down, but not all SPACs go down. Yes. So if you're an investor and you feel like it's a risk-off environment, you don't want to own equities, you could just put your money in treasuries themselves, or you can find some enterprising SPAC, put the money in,

You get the same yield, ideally. As you would buying short-term treasuries yourself. Yeah, I mean, again, there's the fluctuation of the price of the SPAC that'll flow into things. But the company guarantees it, right? So you have this guaranteed yield. You have this guaranteed yield. You can leverage it up because somebody else is guaranteeing it. And you get all this money. And at the end, you actually have the option to buy the final piece of it at a discounted price. So if you like what they're going to buy in the end,

Great. You know, I got this yield for these couple of years and I got this great equity option at the end. If you don't like it, you can step away. You just walk away before they buy the company. That's really interesting. But there's sort of two sides to this picture then. One is you might say the relative resurgence in the SPAC structure in 2025 is showing you that.

Maybe investor sentiment is a little better than other indicators might indicate. So that's one interpretation. Another interpretation is these things are popular in 2025 because they are short-term yield indicators.

vehicles, and actually they are kind of a risk-off asset. And I'm wondering how those two sides of the SPAC personality kind of play out. Yeah. I mean, they're short-term yielding things, crucially with an equity option. So if you're gonna get out of the market anyway, and you're an institutional investor who feels like you can really read the room and see when to get out, then yeah, sure, it's a great risk-off asset. But I think what's more important for SPACs is that there's really good sentiment for SPACs themselves that's emergent.

So, right, not only is it this SEC is seen to be less intense on SPACs, but this administration is very pro-SPAC or has seemed to be pro-SPAC. Yes. So famously— So it's like there's a speculative frenzy like around Trump-associated assets in particular. Yes. It's kind of the painting that you're painting. And SPACs are a vehicle that has been used by people in his circle. Famously, he had Truth Social, his own company. He brought it public with the SPAC.

Yes. A couple years ago. Also, one of the lead underwriter of SPACs and one of the lead advisors to SPAC when they eventually buy something, which is called a de-SPAC.

SPAC is Cantor Fitzgerald, which was the company of Secretary of Commerce, Howard Ludnick. Got it. So there's fervor. And actually, some of these SPACs, as our colleague Antoine Guerra pointed out to me yesterday, are doing quite well. So as soon as SPACs start doing well, as some of them started to do early in 2021, people get really excited about the asset class again, because generally they're big losers. And there is a general class of assets right now, and many of them are crypto assets.

that people are into just because they want to be near where the Trump money is flowing. Absolutely. And, you know, these things are not exclusive, right? A lot of SPACs these days are intending to buy crypto in the end.

So raising money to buy a publicly listed vehicle that owns crypto. Okay. So let's talk about a couple of examples. I mean, DJT, that started as a SPAC, right? We're talking about Trump's media company that owns Truth Social or whatever. There was Digital World Acquisition Company, which was the SPAC that bought DJT. And it was done by Devin Nunes, who is a former congressman close with Trump. Now, one example early on is Devin Nunes has announced a new SPAC.

And that new Devin Nunes SPAC is, I believe, intended, it's blank check, doesn't have an acquisition target, but it's intended to buy something in the crypto space or the defense space. So you know that people in his circle and in the regulatory world are excited about this. On the crypto front, also on the Trump front, we have Brandon Lutnick, the son of Howard Lutnick. He recently announced this giant Frankenstein SPAC.

company. It's kind of a mess. There's like debt being thrown off. There's a SPAC at the middle of it. But essentially, it's trying to copy the strategy of strategy or formerly known as micro strategy. Yes. So, right, trying to buy as much Bitcoin as possible and having a publicly listed thing linked to Bitcoin.

Got it. Man, that's amazing. Are there any other SPACs of note? There's plenty of them. And, you know, people famously say a lot of SPACs are scummy and weird and you have a little grifty vibes. And some of them, I don't even know what they're trying to do. I mean, I know somebody personally in my life who launched a SPAC

And very explicitly in the past, they have described their company's goals. Maybe it's not the SPAC's goals as to create a trademark new World Bank. Yes. They've raised $250 million. We should note that is not enough to be a World Bank. No. Also. I mean, that's a perfect example. Like what even is that a new World Bank? What does that all mean? It's unclear if he really knows what a World Bank is, what the World Bank is given what he said about it in the past. But the crucial takeaway is he wants to buy an insurance company.

That is not the key thing that World Bank does. No. So it's all a bit odd. Now, let's talk about how these things end. You've described to me in the past how it's usually not a good event for investors who are still in the SPAC when the SPAC ends.

de-SPACs, or in other words, finally buys the asset that it was promising to buy all along. Yeah. So crucially, SPACs have an 18-month to two-year window to de-SPAC, right? It's not endlessly listed on the market. It has to buy something at the end. Yes. So you have this incentive to go buy something. There's not always something to buy. Yes. I can see a problem. As calculated by our colleagues over at Lex, the median after de-SPAC value of the company

tends to be a 90% loss. And they also lose a ton of value when they're just on the market before they buy something. So why, who is involved in this asset that it lists, it tends on average to lose value, and then when it de-SPACs, it loses even more value in most cases. Who's there? Well, think about the incentives for the groups, right? So say you're the person operating the SPAC. Mm-mm.

You could actually have real business experience. You could be a little grifty. Who knows? But you get money in that time. And if it's something great – You're probably getting paid to manage it. Paid to manage it. And you get a company at the end. Whether or not the company does well might not be a consequence. And you're going to own – your part of the deal is that you get a certain amount of the equity in the company that is bought. Yes. So, right. You get the company. Great. Makes sense for you. So, the managing partner – I don't even think it's called the managing partner.

But the SPAC manager, I can see their incentives. And then I can see the incentives of the people who just sit there and own it before it de-SPACs, collecting a yield, maybe on a leveraged basis, and then they jump out the window with their parachute just before it de-SPACs. But who else is in it? Crucially, there was one study that came out from Stanford and NYU where I believe it was 98%

So, it's de-investment from institutional investors before de-SPACs. So, most of them get out. So, the institutional money...

I mean, who's left but often the retail investors. Retail investors and, of course, the SPAC managers in there. SPAC managers in there and maybe some institutional investors stay along for the ride. Who, yeah, they know, they like the company that is being bought. Or they trust the person who's managing the SPAC to turn it around. Right. So this is not an investment we might say you want to put in your mother's retirement account. Unless you really, really believe in somebody. Yeah, or you really, really hate your mother. Ha, ha, ha.

All right, mother, I wasn't talking about you. Listeners, we'll be right back with Long and Short. If this government spending in defense goes towards things like R&D that have dual use civilian purposes, you could get spillovers that actually end up enhancing productivity in Europe and so have a more long lasting impact on growth.

To learn more about the intersection of national security and global trade, subscribe to PGM's The Outthinking Investor in your favorite podcast app. Listeners, including my mother, welcome back. This is Long and Short.

The part of the show where we go long things that we like and we go short things we don't like. Aidan, you got a long or a short for me? I do. I'm short the U.S. dollar. Woo! You always come out swinging in this section of the show, Aidan. I love that about you. Isn't that the point? Yes. It's not real money. It's just my reputation. You're short the dollar. I am short the dollar for one simple reason, the budget.

We have a budget that has a very small margin for error. Yes. If it's too big, people will freak out and get out of U.S. assets. Yeah. If it's too spend, when you say big, you mean- Too spendy, too spendy without an- Too much deficit expansion. Deficit expansion or, you know, listen, deficit expansion can be okay if there's real growth positive policies. But if it's deficit expansion without anything that might be actually good for growth, then you're not in a good situation. Yeah.

On the other hand, if it's too small, people will freak out about future U.S. growth and potentially the ability of Americans to keep on buying stocks and make U.S. asset prices go up. So it's like you want – deficit spending is powerful medicine and you want to administer just the right dose. Exactly. And we're like – there's such a small margin for error where the dollar does well. And one way or the other, you think the budget is going to screw it up and the dollar is going to fall. Even if the budget doesn't screw it up, I think people will be concerned. I caution –

listeners not to try to make money trading FX generally, and I doubly caution you not to trade FX on the basis of unhedged advice specifically. Certainly. I today am long jewels. I spent the last few days away at the FT's excellent business of luxury conference in Barcelona, where I

People who sell the very rich stuff come together and talk about business. It's a fascinating insight into a very specific part of the economy. And for the last couple of years, a lot of the categories have been struggling. Clothes, bags, watches, not doing as well. One part of the business holding up.

So I am long jewels. It's like when you're like, oh, do I really need another 38,000 handbag? But it's still that diamond ring. It feels like value. It's convertible. It's a shiny rock. It's small. You can smuggle it across the border. So in these uncertain times...

I am long jewels. Rob, you'll remember that the U.S. had crazy high tariffs initially on Lesotho, the African country that exports a lot of diamonds to the U.S. Ah, so actually tariffs could get my trade in trouble. But maybe it makes the jewels that are here already worth even more. So this is another reason to be long. Another reason you're rooting for Trump's reciprocal tariffs, you're saying. Listeners.

We will be back in your feed next Tuesday. Until then, stay sharp. Unhedged is produced by Jake Harper and edited by Bryant Erstad. Our executive producer is Jacob Goldstein. We had additional help from Topher Forhez. Cheryl Brumley is the FT's global head of audio.

Special thanks to Laura Clark, Alistair Mackey, Greta Cohn, and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free. A 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Rob Armstrong. Thanks for listening.