Hedge Fund Marshall Wace Issues SPAC Warning

Hedge fund giant Marshall Wace is warning investors that special purpose acquisition companies (SPACs) could end up delivering “awful returns,” Bloomberg reported.

Marshall Wace Co-Founder Paul Marshall said the SPAC phenomenon will “end badly” and “leave many casualties,” according to Bloomberg. He disclosed that the firm has more than $1 billion of gross exposure to SPACs in its $21 billion Eureka hedge fund.

The lifecycle of SPACs is riddled with “perverse incentives” for investors, sponsors and the companies using the method to come to market, Marshall said, per Bloomberg.

The SPAC surge in public listings has topped 300 with more than $100 billion so far in 2021, according to the report. SPACs — also known as blank-check companies — have been under the microscope regarding accounting rules and how they apply.

“We have increasing exposure on the short side as the SPACs go ex-deal, and the low caliber of the deals, and even the potential for bezzle, becomes apparent,” Marshall said, per Bloomberg.

Marshall, who has previously lost money betting on SPACs, said the current frenzy that’s also swept up retail investors presents a money-making opportunity, Bloomberg reported. The firm owns or has owned “almost every SPAC” on the long side and is wagering that prices will decline.

The warning follows a surge in SPAC listings.

SPACs going public boomed in 2020, with the growth of these blank-check companies exploding. This year has so far brought SPACs more than the $83.4 billion raised in all of 2020. SPAC Research indicated that a $200 million initial public offering (IPO) of Build Acquisition Corp. raised by U.S. SPACs (through IPOs) pushed the total above the previous year.

Wall Street saw shares rise earlier this year, but they fell in March amid public offerings via SPACs. Fourteen of the 15 SPACs that started trading last month have closed below IPO prices of $10 per unit on the first day of trading.