City fund management veteran Edward Bonham Carter has called into question the investor benefits of so-called special purpose acquisition companies, claiming the vehicles have an element of “speculation” and only really serve those that package and promote them.
Spacs, also known as blank-cheque companies, raise funds on public markets in order to acquire private companies, often in fast-growing sectors like technology and healthcare.
The vehicles have exploded in popularity during the pandemic, allowing some of the world’s largest investment banks rake in billions of dollars in fees in the process.
“It smacks of something different, investing in Spacs. Some elements of it are financial speculation and opportunism,” Bonham Carter told Financial News.
“I’m not sure if there are any benefits, so I’m a sceptic on Spacs. I can see the benefits for those selling Spacs and packaging them together and the fees for those in the process, but I don’t know what the investor gets that is better.”
More than 300 Spaclistings worth $88.5bn took place globally during the first three months of 2021, according to data from S&P Global Market Intelligence, although the pace slowed during the second quarter.
The US has led the way with Spac IPOs, raising $12bn between March and June. But the UK has so far missed out on the boom.
The Financial Conduct Authority estimates that there are currently around 33 SPACs listed in the UK.
However, proposals to overhaul the UK listing regime, unveiled by Lord Jonathan Hill last month seek to fend off competition from locations that have benefited from the Spac listings craze, such as New York and Amsterdam.
The comments from Bonham Carter, who engineered Jupiter’s management buyout from Commerzbank and its IPO in 2010, come amid heightened regulatory scrutiny on Spacs.
On 27 July the Financial Conduct Authority warned Spacs “have risks and remain a more complex investment”, as it unveiled proposals to bolster protection for investors in the vehicles if Spacs want to take advantage of a more liberal regulatory framework around share suspension when the find an acquisition target.
Among proposals are a requirement for Spacs to offer a redemption option to investors, as well as ring-fencing money from public shareholders.
The International Organisation of Securities Commissions, an umbrella group for global markets regulators, met on 26 July to discuss Spacs for the first time. The meeting came after Iosco formed a dedicated network among its members to discuss blank cheque companies.
Iosco said that while Spacs offer alternative sources of funding and provide opportunities for investors, “they may also raise regulatory concerns”.
Bonham Carter stepped down from Jupiter’s board earlier this year, but remains director of stewardship and corporate responsibility.
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